For certain states, escrow is the process where parties transfer funds to a neutral third party and they are held in trust until specific conditions are met before they are released. (In non-escrow states, closings are managed by attorneys.) Escrow Officers play a crucial role in real estate in helping all parties to navigate this process. They turn what seems to most people as fairly complicated processes into smooth closings. They ensure all parties’ interests are protected and owe duties to both buyer and seller.
However, like all real estate professionals, Escrow Officers must not overstep and work outside their expertise. There is a fine line between trying to be helpful and navigating into dangerous territory that could result in a lawsuit.
In this blog, we explore the dangers of Escrow Officers overstepping their bounds. We also provide our best tips on how you as an Escrow Officer can minimize the risks by understanding the limits of your role and being proactive.
Understanding the Risks & Consequences
An Escrow Officer’s responsibility is defined in the real estate contract. Therefore, Escrow Officers should be guided by what the contract says and avoid doing anything outside of those responsibilities. If you are an Escrow Officer and you do go into unknown territory, you open yourself up to liability. This could bring unwanted legal consequences, even if your overstepping your defined responsibilities was accidental. Lawsuits can be expensive to defend, and they can also leave a lasting imprint on your reputation as a real estate professional.
Why an Escrow Officer Might Be Sued
Escrow Officers might face a claim if a real estate contract falls through because of something they did, even if it was not intentional. They could also just find themselves in litigation because one of the parties wants to access the funds being held by the Escrow Officer.
It’s not uncommon for Escrow Officers to manage multiple transactions at once. Unfortunately, this high-pressure environment can create the perfect conditions for unintentional mistakes to happen. Whether an Escrow Officer lacks experience or is a seasoned professional, we are all human and not immune to human error.
When Good Intentions Lead to Lawsuits
There’s nothing wrong with wanting to provide your clients with exceptional customer service. However, as an Escrow Officer, you should never venture beyond your job description to go above and beyond for a client.
An Escrow Officer is not qualified to provide financial or mortgage advice, negotiate contract terms, or mediate disputes. They cannot do anything outside of what the real estate contract says the Escrow Officer needs to do. You need to understand where your role as an Escrow Officer begins and ends and where other real estate professionals fit into the transaction process. Escrow Officers who deviate from their defined role will likely find themselves facing claims from disgruntled parties, especially if things go wrong with the real estate contract as a result of their actions.
Tips to Help Escrow Officers Stay in Their Lane
If you’re an Escrow Officer and you want to protect yourself against possible lawsuits in your line of work, try implementing these strategies:
- Understand the boundaries of your role that are detailed in the real estate contract and resist the urge to go beyond them
- Be proactive in risk management. That means risk management planning and identifying areas of your work where you could be vulnerable to legal claims. This allows you to pre-empt potential issues and implement measures to keep you and your business protected.
- Be proactive in communication, ensuring all parties involved are aware of your role and the escrow process. Transparency can help to avoid misunderstandings.
- Document everything and ensure your filing and recordkeeping are up-to-date. These files will prove to be one of your greatest assets if you ever do need to defend yourself in a court of law.
- Establish clear procedures for all aspects of your work. This will help you avoid mistakes and the need to ‘think on your feet’ if asked a question that could sit outside of your job description.
- While it is normal that an Escrow Officer needs to juggle multiple transactions, try to avoid burnout so you’re not so busy that you start making mistakes or errors in judgment.
- Avoid any conflicts of interest. It is important that Escrow Officers have no vested interest in the money they hold.
- Ensure your escrow company has Escrow Errors and Omissions insurance protection
The Importance of E&O Insurance for Escrow Companies
Escrow Officers have a highly responsible position in the transaction process. The stakes are high, though, if something goes wrong. Escrow errors and omissions insurance is important to protect you and your business.
CRES can customize an insurance package to suit the specific risks of your Escrow company. As part of one of the largest insurance brokers in the world, we have more E&O options for Escrow companies than just about anyone else (especially if you’ve been working with a smaller insurance broker).
Let us find you the best coverage and value your money can buy. CRES Real Estate E&O + ClaimPrevent® includes access to highly qualified attorneys pre-claim so you can get expert legal advice whenever you need it.
Contact the CRES team at 800-880-2747 for a confidential discussion about your insurance today or get a quote for your business online
