Detailed Answer
Short answer: Funds that are held in trust (commonly called escrow funds) generally should not be released until the parties’ written closing/escrow instructions have been satisfied—often including delivery and recording of the deed. Recording the deed is not always a precondition to releasing funds, but releasing funds before the deed is properly delivered and recorded increases the buyer’s risk. In Hawaii, recording a deed creates constructive notice to third parties and is a key protection for buyers. See Hawaii Revised Statutes, Recording of Instruments: HRS Chapter 501.
How it usually works
Most residential and commercial closings use an escrow agent (title company, escrow company, or closing attorney). The escrow agent follows the written escrow or closing instructions signed by buyer and seller. Typical instruction conditions for disbursing funds include:
- receipt of an executed deed in proper form;
- receipt of confirmation that the deed was delivered for recording and/or that it has been recorded (for example, a recording stamp or a county recorder’s document number);
- satisfaction or payment of mortgage payoffs, liens, taxes, and other specified encumbrances; and
- any lender conditions (if a mortgage loan funds at closing).
Why recording matters in Hawaii
Recording a deed gives constructive notice to the public that ownership has changed. If a deed is not recorded, a subsequent purchaser, creditor, or judgment creditor might take an interest that could have priority over the unrecorded transfer. Because of that risk, escrow agents and buyers commonly require proof of recording before releasing purchase funds. For the recording rules, see HRS Chapter 501.
Common scenarios and how courts and escrow officers treat them
- Simultaneous exchange (typical closing): Money is disbursed only after the escrow officer receives the recorded deed or verifiable proof of recording. This protects the buyer and follows standard practice.
- Seller requests early disbursement: If the seller asks for funds before recording, the escrow agent will follow the written instructions. Absent clear, written authorization from the buyer (or other instruction making recording unnecessary), the escrow agent risks liability if it pays out and the deed is not recorded or is defective.
- Recorded later by mistake or delay: If the deed is not recorded immediately but is later recorded, parties may need to resolve any intervening claims. Title insurance (if purchased) can sometimes cover certain losses from recording delays, but coverage terms vary.
- Dispute about conveyance: If the seller refuses to deliver a proper deed or a party claims the deed is forged, funds should remain in escrow. The escrow agent may interplead funds into court or refuse disbursement until a court resolves rights.
Practical legal principles to keep in mind
– Contract controls: Written escrow/closing instructions and the purchase agreement typically determine when the escrow agent must release funds. Follow the contract language exactly.
– Recording provides protection: Recording the deed protects the buyer from later claims by third parties. Failure to record can jeopardize that protection.
– Escrow agents have duties: An escrow agent owes duties to follow instructions and avoid wrongful disbursement. If an escrow agent pays out contrary to instructions, it can face claims for breach of fiduciary duty or conversion.
When you might be able to get funds released before recording
There are limited situations where funds may be released before a deed is recorded, such as:
- Both parties sign written instructions specifically authorizing release upon delivery of an unrecorded deed (with an agreed method to protect buyer, e.g., a signed indemnity or retained promissory holdback).
- Lender requirements permit disbursement when the deed is delivered to the lender or escrow agent, even if the county recorder has not yet completed indexing—but usually the lender requires confirmation of recording within a short period.
- A simultaneous escrow closing where the closing agent can immediately record and issue a recording confirmation during the same session.
Remedies if funds were released improperly
If funds are released despite instructions requiring recording first, possible remedies include:
- Claims against the escrow agent for breach of contract, breach of fiduciary duty, or conversion;
- Quiet-title or specific-performance actions to clear title;
- Title insurance claims (if a policy was purchased and the loss is covered); and
- Court interpleader or indemnity proceedings if multiple parties claim the same funds.
For public recording rules and notice effects, see Hawaii Revised Statutes — Chapter 501 (Recording of Instruments).
Helpful Hints
- Do not wire or authorize release of large sums without written escrow instructions that match what you expect.
- Ask the escrow officer for a recording confirmation: county recorder document number, stamped copy of the recorded deed, or an online recorder link.
- Insist on a simultaneous closing where recording occurs before final disbursement whenever possible.
- Buy owner’s title insurance and review the policy for coverage related to recording delays or defects.
- Retain copies of all closing and escrow instructions. Make sure any change to the instructions is in writing and signed by the parties.
- If you suspect an escrow agent released funds improperly, contact a local attorney promptly to evaluate claims against the escrow agent and options to protect or restore title.
- For licensing or consumer complaints about escrow or title companies in Hawaii, visit the Department of Commerce and Consumer Affairs: https://cca.hawaii.gov/.
Disclaimer: This is general information about Hawaii law and standard closing practice. It is not legal advice. For advice about a specific situation, or if funds were released improperly in your transaction, consult a licensed Hawaii attorney experienced in real property and escrow disputes.