Protect Your Funds: Avoid Real Estate Escrow Violations
Escrow protects both buyers and sellers — but when mismanaged, it can lead to costly mistakes or even fraud. Learn how to safeguard your funds and avoid escrow violations when buying or selling a home.
💡 What Is an Escrow Violation?
An escrow violation occurs when funds in an escrow account are handled improperly — such as being released too early, commingled with other funds, or not returned when a deal falls through. These violations can cause delays, legal disputes, or financial loss.
What Is Escrow in Real Estate?🔍 Common Escrow Violations and Red Flags
Understanding the most frequent escrow issues helps prevent them before they happen:
- Funds released before contract contingencies are satisfied
- Missing or incomplete escrow documentation
- Deposits transferred to unauthorized accounts
- Agents or third parties accessing funds without consent
- Escrow officers failing to follow written instructions
🛡️ How to Protect Your Escrow Funds
Safeguard your transaction by following these essential steps:
- Use a licensed escrow agent or closing attorney
- Verify the escrow account details before wiring funds
- Request written confirmation for every transaction
- Never send money directly to an agent or buyer/seller
- Check that the escrow instructions match your contract
⚠️ What to Do If You Suspect an Escrow Violation
If you believe your escrow funds were mishandled:
- Contact your escrow company and request an account statement
- Notify your real estate broker and state regulatory agency
- Keep all receipts, communications, and instructions on file
- In severe cases, contact your state’s Department of Real Estate or Attorney General
Acting quickly helps protect your rights and prevents further loss.
❓ Frequently Asked Questions About Escrow Violations
Who regulates escrow companies?
Escrow companies are typically licensed and regulated by each state’s Department of Financial or Real Estate oversight agency. Always verify that your escrow provider holds an active license before wiring funds.
What should I do if I suspect escrow fraud?
If you believe your escrow funds have been misused, contact your escrow company immediately for a written statement of account. You can also report suspected fraud to your state’s Department of Real Estate or Attorney General.
Can a buyer or seller lose their escrow deposit?
Yes. A buyer may forfeit the deposit if they default on the purchase contract, and a seller may lose the right to retain it if they fail to meet agreed conditions. Escrow instructions should clearly define when funds can be released.
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