How Escrow Works in the U.S.

Escrow is a legal arrangement where a neutral third party (the escrow agent) holds funds, documents, or assets on behalf of transacting parties until specific conditions are met. Lawyers often act as escrow agents due to their fiduciary duty to handle escrow accounts with the highest level of care and integrity.

In the U.S., escrow accounts are governed by strict laws and regulations to protect all parties involved. Lawyers managing escrow accounts must adhere to state bar rules, which include:

• Safeguarding Funds: Escrow funds must be held in separate, designated accounts and cannot be commingled with the lawyer’s or firm’s operating funds.
• Accurate Record-Keeping: Detailed records of all escrow transactions must be maintained to ensure transparency and accountability.
• Timely Disbursement: Funds must be disbursed only when all contractual conditions are satisfied, and all parties have agreed.
• Compliance with State Bar Rules: Lawyers must follow state-specific rules governing escrow accounts, including reporting requirements and audits.

Lawyers acting as escrow agents assume significant professional liability. Any mismanagement of escrow funds, such as commingling, misappropriation, or failure to disburse funds correctly, can result in severe consequences, including disciplinary action, fines, and even disbarment.