Fisher Law Corporation’s Frequently Asked Questions

The following are select subjects which are representative of the type of law we practice. Peruse the articles: If you don't find a subject that interests you, call us or e-mail us with your request.

Notice: The information contained in these articles is designed to provide accurate information in regard to the subject matters covered and is made available with the understanding that the information provided does not constitute the rendering of legal or professional services. All information is of a general nature, is specific to California law only, and is not intended to to replace professional or legal advice. Each person’s situation is unique and the information contained herein cannot be applied to any individual’s situation. If legal advise is required, the services of a professional should be sought.

What is an all-inclusive deed of trust? »

What is CERCLA? »

How does a condominium differ from a house? »

What are Covenants that run with the land? »

What is a deed in lieu of foreclosure? »

What are easements? »

What are Encroachments? »

How does escrow work? »

What is fire and flood insurance? »

How do foreclosures work? »

What are the different forms of doing business? »

What do trade terms mean? »

What are liquidated damages in real property contracts? »

What is a Lis Pendens? »

How do loan modifications work? »

What is a Mechanic’s Lien? »

How does a Multiple Listing Service work? »

What is an off-shore trust? »

How do real property taxes work? »

What is Procuring Cause? »

What is a Quitclaim Deed? »

What is RESPA? »

Who bears the risk of loss during escrow? »

What are second deeds of trust? »

What is the Statute of Frauds? »

What is Statute of Limitations on Debts Secured By a Mortgage? »

Does a buyer’s broker have a duty to inspect? »

What is The Parol Evidence Rule? »

What is Adverse Possession? »


Q. Who bears the risk of loss during escrow?

A. The Northridge Earthquake of January 17, 1994 caused substantial damage to numerous buildings throughout the San Fernando Valley. One question the earthquake has raised between hundreds, and perhaps even thousands of real estate owners and brokers is: Do I still have to go through with my escrow if the home or building was damaged?

In legal terms, this is a question of risk of loss. An escrow involves the deposit of documents or money with a third party to be delivered on the occurrence of some condition. Since either party is entitled to withdraw from a transaction at any time before there is an enforceable contract that is binding on both parties, a valid escrow is not established until there is an enforceable contract between the parties.

Once there is a binding and enforceable contract between the parties supported by adequate consideration, the escrow becomes irrevocable, and neither party can withdraw his documents or money before the escrow conditions are satisfied.Until the conditions have been performed, neither party acquires title to the property or money deposited by the other party, except that each party has an equitable interest in the deposit of the other party subject to performance of the escrow conditions.()

The risk of loss of property by fire or other calamity, including earthquakes, closely follows the same general rules applicable to the rights between a seller and buyer of goods. Thus, the seller retains the risk of loss until either title or possession is transferred to the buyer. When the property is destroyed after the parties have deposited their documents and money into the escrow but before the conditions of escrow are performed, the seller retains title to the property, and since he retains the risk of loss, he is entitled to the insurance proceeds.

In many instances, the escrow holder maintains blanket insurance which protects the parties against loss or damage to the property while it is in escrow and before the buyer obtains his own insurance. It is important to inquire whether your escrow holder in fact maintains such insurance.

If the contract of sale between the parties does not specify who is to bear the liability for risk of loss or damages to the premises during the time between the execution of the sales contract and the transfer of title, the liability of the parties is governed by the Uniform Vendor and Purchaser Risk Act. Under the provisions of this statute, the risk of loss or damage to the premises is on the shoulders of the seller until the buyer either receives title or possession, and, the buyer is given the right to cancel the sale.

Whether a party to an escrow has the right to cancel or rescind the escrow depends largely in part of the express terms of the escrow instructions because they may change the risk of loss set forth in the Uniform Vendor and Purchaser Risk Act. Many escrow instructions contain language to the effect that title remains with the seller “until close of escrow.” This is consistent with the Uniform Vendor and Purchaser Risk Act.

However, some sales contracts or escrow instructions may have language that attempts to shift the risk of loss before title or possession transfers to the buyer. Even in cases like this, if one of the conditions is that the seller is required to deliver possession of the property free and clear of material physical defects, and the home or building is materially damaged, the buyer may have the right to cancel the transaction, provided the seller cannot cure the defects or damages in a timely fashion. Each escrow transaction will vary, so it is imperative that you review the terms and conditions carefully.

Back to FAQ Questions »

“The administration of justice is the firmest pillar of government.”

—George Washington