Can escrow or trust funds be released before a deed is recorded? — South Carolina FAQ
Short answer: Under South Carolina practice, funds held in escrow or a trust can sometimes be released before a deed is recorded — but only when the closing conditions in the escrow instructions or purchase contract are satisfied and parties (and the escrow agent) follow proper safeguards. Recording a deed affects third‑party priority and notice, not the underlying transfer between the parties. Because releasing funds too early can create serious risk, parties often require the deed to be recorded (or require title insurance and other protections) before release.
Detailed answer — how this works in South Carolina
1. Two different legal questions
- Has ownership between the buyer and seller passed? That depends on delivery and acceptance of the deed and the parties’ agreement.
- Has the deed been recorded to protect the new owner against later purchasers and creditors? That depends on South Carolina recording practices and the timing of recording.
Recording in South Carolina provides constructive notice to the world about conveyances. Recording does not always determine whether title has passed between the buyer and seller; it determines priority and what later purchasers or creditors can claim. For an official copy of the state code, see the South Carolina Code of Laws: https://www.scstatehouse.gov/code.php.
2. Role of escrow/trust instructions
Most closings use written escrow or closing instructions that list conditions for releasing funds. Typical conditions include:
- Receipt of a properly executed and acknowledged deed.
- Satisfaction of lien searches and payoff instructions (mortgages, taxes, judgments).
- Delivery of title insurance commitment or proof of clear title.
- Recording the deed, or a written agreement to record immediately and provide proof of recording.
If the escrow instructions say funds are to be released only after recording, the escrow agent should not release funds before the deed is recorded unless all parties agree in writing. If the instructions say the deed only needs to be delivered and accepted (and recording can follow), the agent may release funds once those conditions are met.
3. Practical risks of releasing funds before recording
Releasing funds before recording carries these common risks:
- A subsequent purchaser or lender could record first and obtain priority over the buyer.
- Unknown liens or claims discovered later may attach to the property despite funds having been paid out.
- The escrow agent may face liability for wrongful release if it did not follow its instructions.
4. Common safeguards used in South Carolina
To reduce risk when funds might be released before recording, parties often require one or more of the following:
- Title insurance issued at or before closing to protect the buyer against hidden defects and priority claims.
- A recorded memorandum or immediate recording of the deed by the closing agent, with funds held until the county recorder’s stamped copy is provided or until the agent confirms recording in the land records.
- An agreement that the closing agent will place funds into a controlled account and will not disburse until the recording confirmation is received.
- Escrow holdback language spelling out precise timing and conditions for release.
5. When an escrow agent improperly releases funds
If an escrow or trust agent disburses funds in violation of written instructions, the harmed party can sue for breach of contract or seek equitable relief. Courts in South Carolina can order funds returned or require other remedies, and an escrow agent may be exposed to damages. If there is competing claim to the funds, an interpleader action may be appropriate.
6. Lender requirements
Lenders often condition funding on recording (or immediate recording) because they need their mortgage lien to be first in priority. If a buyer uses lender funds, the lender’s instructions and underwriting requirements typically control timing of disbursement.
Helpful hints — practical checklist for buyers, sellers, and closing agents
- Read the escrow or closing instructions carefully. Funds should be released only when the written conditions are met.
- Insist on title insurance if you are the buyer; it reduces risk from post‑closing title defects and priority disputes.
- Ask the closing agent to record the deed immediately and confirm recording before funds are disbursed — or hold funds in escrow until the recorded deed is received.
- If you’re a seller, don’t accept a promise to record later without a secure mechanism to ensure you get paid (for example, an irrevocable wire or a recorded lien release condition).
- If the escrow agent wants to release funds before recording, get the agreement in writing and consider requiring an indemnity or bond from the party asking for early release.
- If competing claims arise, request that the escrow agent file an interpleader or seek court guidance rather than making unilateral releases.
- Work with a closing attorney or title company experienced in South Carolina conveyances to ensure county recording practices are followed.
Where to look in South Carolina law
South Carolina statutes and case law cover recording and conveyance rules, recording as constructive notice, and remedies for wrongful disbursement. For the state code and statutory provisions related to property and conveyances, see the South Carolina Code of Laws: https://www.scstatehouse.gov/code.php.
Next steps — when to talk to an attorney
If you face any of these situations, consider consulting a licensed South Carolina attorney if:
- Funds were released in violation of the escrow instructions.
- There is a dispute over whether title passed before or after the release.
- You need an interpleader, injunction, or other court remedy to protect your interest.
Disclaimer: This article is for general informational purposes only and does not provide legal advice. It is not a substitute for advice from a licensed South Carolina attorney who understands the full facts of your situation.