Title Company's Escrow Officer Owes a Fiduciary Duty to Both Buyer and Seller

San Antonio Texas Real Estate Attorney Trey Wilson wrote:

Where real estate transactions are concerned, there are 3 "seats" at the Closing table -- the Buyer, the Seller, and the Title Company's Escrow Officer.  While the Title Company is not a "party" to the purchase or sale of real estate, the Escrow Officer factors prominently into the Real Estate Contract, and  his/her role is vital to a successful transaction.

The significance of the Title Company's role is evidenced, in part, by governmental regulation of premium rates that can be charged for policies of title insurance. In Texas, the Texas Department of Insurance (TDI) sets Texas Title Insurance Premium Rates on an annual basis. Once set, Title Companies may not charge premiums in excess of those established by the TDI, and, resultantly, premium rates are "standardized" across all title companies doing business in Texas.

Perhaps even more significant than regulating title insurance premiums, is the State's concern with regulating who may act as an Escrow Officer in Texas. Texas law prohibits any person from acting in the capacity of Escrow Officer without being licensed by the TDI, and obtaining and maintaining a surety bond.  

The Texas Title Insurance Act (located at Title 11 of the Texas Insurance Code) defines "Escrow Officer" as an attorney, or bona fide employee of either (i) an attorney licensed as an Escrow Officer, (ii) a Direct Operation, or (iii) a Title Insurance Agent, whose duties include any or all of the following:

1. countersigning title insurance forms;

2. supervising the preparation and supervising the delivery of title insurance forms;

3.  signing escrow checks; and/or

4.  closing the transaction.

This regulation is important because under Texas law, the Escrow Officer / escrow agent in a real estate closing owes a fiduciary duty to both parties, seller and buyer, to the underlying contract.Trevino v. Brookhill Capital Resources, 782 S.W.2d 279, 281 (Tex.App.—Houston [1st Dist.] 1989, writ denied); Capital Title Co. v. Donaldson, 739 S.W.2d 384, 389 (Tex.App.— Houston [1st Dist.] 1987, no writ). The three elements of this fiduciary duty are 1) a duty of loyalty; 2) a duty to make full disclosure; and 3) a duty to exercise a high degree of care to conserve the [closing/escrow] money and pay it only to those persons entitled to receive it. City of Fort Worth v. Pippen, 439 S.W.2d 660, 665 (Tex.1969).

Pursuant to this fiduciary duty, a title company's Escrow Officer is legally bound to follow the agreed terms of a Real Estate Contract/ Purchase and Sale Agreement.  This duty is an absolute one, requiring the Escrow Officer to carry out the terms of the agreement creating the escrow agency. See Albright v. Lay, 474 S.W.2d 287, 291 (Tex.Civ.App.—Corpus Christi 1971, no writ). 

When an Escrow Officer breaches one of the fiduciary duties owed to the parties -- whether by failing to properly pay those items set-forth in the Closing Statement, by mishandling or misdirecting funds, by failing and/or refusing to pay real estate commissions and/or by failing to disburse/refund earnest money as prescribed by a contract -- buyers and sellers may recover on the Escrow Officer's bond, or bring a direct action for damages.