The Role of an Escrow Agent in a North Carolina
Commercial Real Estate Transaction
By: Lindsey Abboushi- North Carolina Licensed Attorney with Brownlee Whitlow & Praet, PLLC
Commercial real estate transactions can be complex and often involves multiple parties, detailed contracts, and large
sums of money. Some of the most important roles in a transaction are having a great attorney representing you and having
a neutral escrow agent.
What is an Escrow Agent?
An escrow agent is an impartial party who facilitates the real estate transaction by holding funds (such as earnest money
and extension fees) and important documents (like the property deed) until the transaction’s terms are met in accordance
with the Purchase and Sale Agreement (“PSA”). These agents act as fiduciaries, ensuring that neither the buyer nor seller are
at risk of loss due to unmet obligations or fraudulent activity. Basically, they make sure the transaction runs smoothly and timely closes. In many transactions, the closing attorney and the escrow agent are the same person, but that does not excuse their obligation to be an impartial escrow agent and follow the rules of the PSA.
Escrow Requirements and Escrow Agent Qualifications:
In North Carolina licensed real estate brokers (through the NCREC) and attorneys often act as escrow agents in
commercial real estate transactions. Both professions are heavily regulated, and individuals must pass licensing exams and meet specific educational and ethical standards. State law provides specific guidelines for escrow agents, especially when it comes to how funds are managed. Escrow funds must be kept in separate trust accounts, and strict fiduciary duties apply to prevent any misuse of funds.
The Role of the Escrow Agent
The escrow process is especially critical in NC, where real estate law requires specific procedures to ensure fair dealing
and compliance with state regulations. Here’s a breakdown of an escrow agent’s role in the state:
- Holding Earnest Money: In NC, the escrow agent often holds the buyer’s earnest money deposit in an escrow account. This account can accrue interest, depending on how long the transaction goes on. This deposit shows the buyer’s commitment to the purchase, but it is held in trust until all the conditions of the PSA are satisfied. If the transaction terminates, for any reason, the escrow agent must follow the terms of the PSA to determine where the earnest money deposit goes.
- Overseeing the Due Diligence Period: NC real estate law includes a “due diligence” period in which the buyer can
inspect the property and have it surveyed and tested, review financial information about the property, obtain financing, and ensure that there are no legal or structural issues with the property, that they do not consent to. During this period, the escrow agent usually holds the funds in trust until the buyer is satisfied or decides to terminate the deal, unless the purchase contract directs otherwise. Often, the entire due diligence amount is refundable during this period to the
buyer and becomes non-refundable after this period, except in cases of seller breach. - Managing Documents: The escrow agent holds important documents, including the PSA, any amendments to the PSA,
the property deed, and any other transaction-related materials to “safeguard” the transaction. They ensure that these documents are exchanged only when all parties have fulfilled their contractual obligations under the PSA. - Compliance and Monitoring: In a commercial real estate transaction, various conditions must be met before the deal
can close – such as title clearance, environmental assessments, and zoning compliance. The escrow agent monitors the fulfillment of these conditions (usually with a team including the title attorney, and both the buyer and seller’s
attorneys) to ensure compliance with NC law and the terms of the PSA. - Finalizing the Transaction: Once all conditions are met, the escrow agent distributes the funds to the appropriate
parties. This could include paying off any existing loans and obligations that are tied to the property, disbursing the balance to the seller, and paying closing costs.
Final Tips:
In North Carolina, the escrow agent plays a vital role in ensuring that commercial real estate transactions proceed
smoothly and according to the law. There are many moving parts to these transactions, and it is crucial to have a great
working team. Whether managing funds, holding documents, or ensuring compliance with state regulations, escrow agents protect the interests of all parties involved. To fulfill this role, escrow agents must meet stringent licensing and regulatory requirements, maintain trust accounts, and demonstrate expertise in real estate law. Choosing a qualified escrow agent can make a significant difference in the success and efficiency of your transaction, so choose wisely!
*The information provided in this article does not, and is not intended to, constitute legal advice; instead, all information in this article is for general informational purposes only. Information in this article may not constitute the most up-to-date legal or other information. Viewers of this material should contact their attorney to obtain advice with respect to any particular legal matter. No viewer of this material should act or refrain from acting on the basis of information in this presentation without first seeking legal advice from counsel in the relevant jurisdiction. Only your individual attorney can provide assurances that the information contained herein – and your interpretation of it – is applicable or appropriate to your particular situation. Use of, and access to, this article does not create an attorney-client relationship between the reader and Brownlee Whitlow & Praet, PLLC or any contributing law firms. All liability with respect to actions taken or not taken based on the contents of this article are hereby expressly disclaimed.
