Real estate transactions are often high-stakes, high-dollar deals that rely on precision, timing, and trust. One of the most critical parts of a transaction is the escrow process, which is meant to protect both buyers and sellers. But when escrow errors or violations occur (misapplied funds, missed deadlines, or unauthorized disbursements), who is ultimately responsible?
If you’re facing financial harm or litigation due to an escrow issue in Ohio, this guide will help you understand your rights, what legal duties apply, and when it’s time to involve an attorney.
At Cavell Law in Solon, Ohio, our real estate litigation attorneys represent clients throughout Northeast Ohio in escrow disputes, breach of fiduciary duty claims, and related real estate litigation.
What is Escrow and Why Does It Matter?
In a real estate transaction, escrow is a legal arrangement where a neutral third party (typically an escrow agent or title company) holds and distributes funds and documents based on the agreed terms of a real estate purchase contract.
Escrow ensures:
- The buyer’s funds are secure until the conditions of the sale are met
- The seller doesn’t transfer title until full payment is made
- Legal and contractual obligations are met before closing
Escrow agents must act impartially, follow written instructions precisely, and keep accurate records. In Ohio, many escrow services are provided by title companies or attorneys. A failure to properly handle escrow duties can create real financial damage and legal liability.
Common Escrow Mistakes and Violations
Not every mistake is malicious, but even innocent errors in escrow can lead to serious problems.
Here are the most common types of escrow errors seen in Ohio real estate transactions:
1. Mishandling of Funds
This includes misapplying earnest money, disbursing money to the wrong party, or releasing funds before contractual conditions are met.
2. Failure to Follow Instructions
An escrow agent must strictly follow the escrow agreement and purchase contract. Failure to do so, even due to miscommunication, can result in a breach.
3. Improper Accounting or Recordkeeping
Escrow agents must keep precise records of all transactions. Failing to account for every dollar held in escrow is a red flag.
4. Unauthorized Disbursement
Disbursing funds based on oral instruction or under pressure from one party, without documented authorization, is a violation.
5. Negligence in Detecting Title Defects
When the title company serving as escrow agent fails to catch liens or ownership defects, the buyer may inherit major legal problems.
Who Can Be Held Liable for an Escrow Error in Ohio?
Escrow violations often involve overlapping responsibilities. Liability depends on the nature of the mistake and each party’s role in the transaction. Let’s break down potential responsible parties.
1. The Escrow Agent or Title Company
In most cases, the escrow agent or title company is the first place to look. They are legally obligated to:
- Follow the escrow instructions
- Act with due care
- Remain neutral between buyer and seller
When they breach these duties, they may be held liable for negligence or breach of fiduciary duty.
Ohio law recognizes fiduciary relationships in escrow, meaning the agent must act in good faith and in the best interest of all parties. Errors like misdirected wire transfers or early disbursement can result in substantial liability.
2. Real Estate Agents or Brokers
Real estate agents are not escrow officers, but their actions can influence the process. If an agent provides inaccurate instructions, fails to communicate escrow terms clearly, or mishandles paperwork, they could be partially liable under a theory of professional negligence.
3. The Buyer or Seller
In some cases, the parties themselves cause the issue. For example, by:
- Sending incorrect wiring instructions
- Withdrawing from the transaction without formal notice
- Failing to notify escrow of contract amendments
If a party contributes to the mistake, they may bear some responsibility or lose legal protections.
4. Lenders
Lenders typically issue closing instructions to the escrow agent. If a lender miscalculates payoff figures or gives premature authorization, they could be pulled into a legal dispute.
Who Pays for a Wire Fraud Scam?
Wire fraud during real estate closings has become increasingly common. If a buyer is tricked into wiring funds to a fraudulent account (often due to email phishing or hacked communications) liability depends on who was negligent:
- Did the escrow agent fail to confirm instructions by phone?
- Was the title company using unsecured email?
- Did the real estate agent fail to warn the buyer about wire fraud risks?
Ohio courts will look closely at who had a duty to act, who breached that duty, and whether that breach caused the financial loss.
What To Do If You’ve Been Harmed by an Escrow Violation
If you’re dealing with financial harm, lost earnest money, or a delayed closing caused by an escrow mistake, don’t assume it’s just a risk of doing business. You may have legal remedies under Ohio law.
Here’s what to do:
1. Request a Full Escrow Accounting
Ask the escrow agent or title company for a written ledger of all deposits, disbursements, and dates. Compare it with your contract and communications.
2. Document All Communications
Save every email, text message, and signed document related to the transaction. These will be essential if a dispute goes to court.
3. Consult a Real Estate Litigation Attorney
Ohio escrow law is nuanced. An experienced attorney can evaluate whether fiduciary duties were breached, whether negligence occurred, and who may be legally liable.
4. File a Claim or Lawsuit
Depending on the facts, your attorney may recommend filing a formal claim against:
- The escrow company’s errors and omissions insurance (E&O)
- The title company or agent directly
- A real estate licensee involved in the violation
How Cavell Law Helps Clients Navigate Escrow Disputes
At Cavell Law, we represent buyers, sellers, real estate professionals, and investors throughout Solon and Northeast Ohio in real estate litigation, including:
- Escrow negligence claims
- Breach of fiduciary duty lawsuits
- Earnest money disputes
- Wire fraud liability disputes
- Title defect resolution
Whether you need aggressive courtroom representation or strategic settlement negotiations, our attorneys help you pursue compensation and resolve disputes efficiently.
Protecting Yourself From Escrow Mistakes
Escrow is supposed to protect all parties, but it only works when handled properly. If you’ve been affected by an escrow error, don’t rely on the escrow agent’s word or assume you’re out of options. Legal liability for escrow mistakes is real and enforceable in Ohio courts.
If you believe an escrow mistake has cost you time or money, contact Cavell Law today to schedule a confidential consultation. Our team will help you determine who is responsible and what recourse you may have under Ohio law.
