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Escrow Agreements & Contracts for Deed

In real estate law and litigation, I find two of the more commonly misunderstood principles are Escrow Agreements and Contracts for Deed. While the latter is somewhat rare, the former is something you should have an understanding of before entering into a real estate contract (even though Deeds of Trust are so common in Missouri).

A strict definition of escrow is that a written instrument, deposited to be held until the performance of a condition, is an instrument held in escrow. This usually comes about because of a formal, written escrow agreement, rather than by implication and conduct. Accordingly, a real estate sale contract which provides for placing the deed or conveyance and the consideration, or any other part of the transaction, in escrow until closing or pending an occurrence is an escrow agreement. In addition to situations in which an escrow agreement is requirement by contract, it is advantageous if you want the transaction to move forward upon the occurrence of a stated event.

Escrow agreements can, moreover, lead to serious litigation, especially because the escrowee is the trustee of a trust who must act in a fiduciary capacity (See: Fiduciary Duties of a Trustee).

Contracts for Deed are often called long term sales contracts. It is essentially a deferred sales contract in which the seller retains the legal title until the purchaser has paid the full contract price. From a bird’s eye view, the cons seem to outweigh the pros when deciding whether to execute a contract for deed, particularly because there is not a lot of concrete case law on point in Missouri. However, as with escrow agreements, you should undoubtedly consult with an attorney before signing any such contract.

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