The Myths About Escrow Closings

WEST ORANGE, NJ—The real estate industry is collectively developing CADD, otherwise known as Closing Attention Deficit Disorder. In a time where escrow closings and remote exchanges of documents have become the norm, the lack of in-person, real time interaction is creating noticeable inefficiencies. 

There's no doubt that escrow closings have their place as a transactional tool. If a deal's parties and their counsel are located in different parts of the country, the deal size simply may not justify the travel costs or the dedication of time by the various necessary parties and professionals for an in person closing.

But, regardless of geography, more and more deals are being done through escrow instead of at a conference table. I'll often work with clients who prefer escrow closings because of potential savings in time and money. Unfortunately, those savings rarely materialize.

During an escrow closing, the goal is for all documents and funds to be placed with the escrow agent to remotely consummate the deal. Done early on the day of closing, the escrow closing can, in theory, save time. But a problem often occurs when documents are either not finished or not properly executed in advance (in addition to a host of potential business issues that may be unresolved going into the closing).

In such instances, all parties are left to negotiate and resolve issues by email, phone—or worse, fax—on the day of the closing. What could have been a 20-minute conversation in a meeting room often evolves into an hours or days-long slog.

These delays are often compounded when partially signed documents (either originals or facsimile signatures) are sent to the escrow agent to combine into signed originals. Needless to say, the process of combining, re-signing, scanning and emailing a large stack of documents is a burdensome one.

In addition to these potential inefficiencies, there is also an issue that cannot be measured in dollars. Escrow closings take the "dealing" out of real estate deals. In an industry that thrives on negotiation, compromise and collective action, escrow closings create an unneeded barrier between parties and professionals. It diminishes the notions of trust and goodwill between parties—two of the signature tenets of deal making.

Many older attorneys who spent time closing deals in conference rooms will fondly recall how document changes were made by hand and post-closing undertakings were sometimes written on legal paper. While this was a less tidy and packaged process than an escrowed closing, it's undoubtedly a more efficient one, as closing in person relies on the real-time efforts of those involved working toward a common business goal. Maybe it's time to replace the cold, impersonal and isolating escrow closing with a handshake across the closing table.

Jeffrey M. Gussoff is a member of law firm Chiesa Shahinian and Giantomasi PC. He may be contacted at jgussoff@csglaw.com. The views expressed here are the author's own.