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Legal Staff News & Views Letter Escrow Drafting Issues An escrow is an agreement under which documents and funds are deposited with a neutral third party. This third party, the escrow trustee or escrowee, holds the documents and funds until the conditions specified in the agreement have been met. In many escrows, the conditions are satisfied when the parties execute a Joint Direction instructing the escrowee how to distribute documents and disburse funds. Drafting joint order escrows is a fairly routine matter. Most title companies have standardized forms that fit most situations. Occasionally, however, escrow agreements may contain provisions that trigger disbursement or other action by the escrowee upon the occurrence or non-occurrence of some stated event. These escrow agreements are referred to as Self Executing Escrows and are more difficult to draft. Attorneys frequently draft their own self-executing escrow agreements rather than utilizing a title company form. Unfortunately word processor generated escrow agreements are frequently lacking provisions that create a degree of risk for the parties to the escrow and ultimately to the attorney drafting or approving the agreement. This article will focus on the Self Executing Escrow. The escrowee will act upon the occurrence or non-occurrence of an event. This triggering event may be any definable and verifiable event. Typically, however, it will be the escrowee's receipt of a notice or the passage of time. Whatever the triggering event, the escrowee is authorized to act without further direction from the parties to the escrow. Common Provisions and Issues: Most title/trust
companies will not accept a money holding escrow that lacks commingling
language. Commingling provisions are frequently absent from word processor
The commingling portion of the paragraph highlights the fact escrow deposits are put in a general fund and mixed with the escrowee's operating funds. The only segregation is an accounting entry. Physical segregation of escrow deposit would be an administrative millstone and is not practical. When the escrowee dips into the commingled pool of funds for escrow disbursement purposes, it is impossible to say any one particular dollar did or did not originate as any one escrow deposit as opposed to operating revenue. The language makes this fact explicit. Regardless, the escrowee also agrees that, notwithstanding the commingling, it shall always have sufficient funds available to fulfill the purposes of the escrow. Investment: The first part of the italicized paragraph deals with investment of escrow deposits. A corporate fiduciary escrowee, such as a title or trust company, has a statutory duty to invest the escrow deposit [205 ILCS 620/2-8(b)]. But no escrowee wants a dispute with the parties over investment choices or earnings. The escrow should specifically state the funds will not be invested without the proper paperwork. That paperwork consists of specific written investment instructions and tax reporting information. The parties to the escrow accept the risk of any loss of principal or interest from the investment choice. The escrowee needs tax reporting information in order to make the investment. The institutions handling the invested funds will not do so without that information. Often, the parties to the escrow desire alternative tax responsibilities depending on who ultimately receives the escrowed funds. Compliance With Court Order: Another provision often absent from escrow agreements that do not use a title company form relates to compliance with court orders. That language should follow along these lines:
Two points of interest in the above paragraph are, first, the escrow trustee will obey any court order regardless of whether the court has jurisdiction. This is necessary language because the escrow trustee is in no position to reach a legal conclusion whether the court has jurisdiction. Second, the escrow should contain language explicitly stating the parties are responsible for the escrowee's legal expenses in the event of a dispute. The meaning of self-executing escrow provisions must be objectively obvious to anyone reading the instructions. The escrow function is a ministerial act, and the escrowee should not be called upon to interpret notices, contract or events. Notices: Notices should be made effective only when physically received by the escrowee. A notice that is effective on mailing, but never received or not received in the proper time frame by the escrowee puts the escrowee in a poor position. This is also the case with faxed notices. Faxed notices should be effective only when physically received by the escrowee. A successful fax transmission report from the transmitting party's machine should not be what makes the notice legally binding on the escrowee. The form of notice may be defined in the instructions and attached as an exhibit. While a good idea in any case, this is especially useful in the case of a complicated escrow with several alternative disbursing provisions and will avoid questions of what the notice actually means. Often a "Notice" dashed off at 4:55 p.m. on a Friday to beat a 5:00 p.m. deadline will not be crafted with perfect clarity. The escrowee should not be left guessing whether it truly is a notice within the meaning of the escrow. The escrowee's actions, in reliance on the notice, should not be open to question. Incorporated and Undefined Terms: It is best not to incorporate by reference the terms of other instruments, such as contracts, into the escrow. If such terms are used, the parties should consider adding a statement the escrowee is not to be bound by these external documents. A common situation is to have the escrow refer to "X, as defined in the contract." The escrowee should not be called upon to interpret the contract. The contract can be amended subsequently to execution of the escrow and its interpretation can involve questions of law and fact beyond the escrowee's purview. Risks: In exchange for convenience a certain increased risk needs to be accepted. The escrow language needs to be tight. Such drafting is difficult given the universe of anticipated events. The risk of malpractice liability is thus correspondingly greater. The use of exculpatory language as a devise to ally these risks does not work. The escrowee needs definitive instructions upon which to rely. Exculpatory language removes this definitiveness. A practical problem is the risk the escrowee may misinterpret a notice or triggering event. The escrowee may then be liable for damages, but suing the escrowee is not the client's ultimate business goal. The parties also need to accept the loss of control inherent in the use of a self-executing escrow and the concomitant risk associated with that loss. Furthermore, any complexity that goes beyond the standard joint order escrow ought to be reflected in the cost of the escrow service. In the light of the practical risks, the malpractice risks, and the drafting difficulties, parties seeking to use self-executing escrow provisions, especially in a complex transaction, should seriously consider whether the convenience is justified. Finally, as elementary as it sounds, word processor generated escrow agreements should be proofread before the client signs it. It is not uncommon for the same form to be reused for different transactions. When forms are reused internal paragraph cross-references and specific terms may no longer make sense. It is best to resolve these issues before the client signs. The escrowee may be willing to review drafts of the escrow agreement to help eliminate drafting errors and omissions. Oh, My Aching Head... During the past year, nearly 90% of men and 95% of women have had at least one headache. This based on statistics from the American Council for Headache Education. Headaches fall into three categories: Tension or muscular headaches, migraine and sinus. Tension headaches are commonly triggered by: Stress, reading, not getting enough sleep, and sitting in one position for too long (computer work). A tension headache is characterized by a dull pain in the forehead, above the ears or back of the head. Migraine headaches occur when the blood vessels constrict or dilate. Migraine headaches can be triggered by: stress, fatigue, hormone fluctuations, changes in weather or barometric pressure. Certain foods and food ingredients can also trigger a migraine, these include: Dark-colored alcoholic beverages, nitrates (found in lunch meats, hot dogs and bacon) and tyramine (found in fresh baked breads and ripe cheese). Symptoms of migraine include: One side of your head hurts more than the other (localized), nausea/vomiting, you see spots (scotoma), light sensitivity (photophobia) and your ears may ring (tinnitus). A sinus headache makes your forehead, cheekbones and nose hurt due to the increased pressure. Sinus headaches can be a result of a cold, an infection, allergies, air pollution, airplane travel or respiratory problems. Headaches can be a symptom of other health problems: Fever, high blood pressure, low blood sugar, infections, pinched nerve in the neck, shingles and dental problems. Less often, a headache can be a symptom of a serious health problem that requires immediate medical attention such as: Acute glaucoma, stroke, tumor or blood clot. When do you see a doctor? If your headache gets worse or changes in character, you experience three or more headaches a week, you must take pain relievers daily or nearly everyday to relieve your headache symptoms, your headache is triggered by head injury, exertion, coughing or sexual activity, your headaches began after age 50. Seek treatment immediately if your headache is accompanied by any of these symptoms: Stiff neck, and/or confusion, drowsiness or persistent vomiting. Listen to your body, if you think you should see a doctor, do it! There are 10 steps you can take to reduce stress and prevent a headache. 1. Prepare. Prepare for the morning on the evening before. Fix lunches the night before, prepare your clothing and set the breakfast table. 2. Write it down. In the age of trying to complete multiple tasks with multiple demands it is nearly impossible to commit everything to memory. Use an appointment calendar and Post-Its. Keep a small pad of Post-Its in your purse or wallet and the glove compartment of your car. 3. Practice preventative maintenance. Keep your cars, appliances and home maintained, use the maintenance schedules as your guide and record in your calendar. This prevents those "headache inducing" breakdowns. 4. Plan ahead. Being organized automatically takes the stress off. Don't wait until the gas tank is on empty. Stock an emergency bin of items that you routinely use often in your house so you never run out. 5. Get up and stretch periodically. If you sit at a computer it is recommended that you give your eyes a 10-15 minute break every hour. 6. Get enough sleep. 7. Take a deep breath. Deep breathing is a terrific way to relieve stress and get the oxygen to your brain. Try this exercise-take a deep breath in through your abdomen (breath in while pushing the abdominal muscles out) and breath our through your nose. Do this with your eyes closed or open 10 times. 8. Share the load. Spread the responsibility to others, learn to delegate. 9. Take a break. Even if it is a lunch break from 15-20 minutes, get away from your desk. 10. Exercise! For more information see the following references: American Council for Headache Education (www.achenet.org). Healthy Life Self-Care Guide, Powell, D., 9th Edition, 1998, American Institute for Preventative Medicine, (pgs. 63-65). Essentials of Medical-Surgical Nursing, deWit, S., 4th Edition, (pgs. 354-359). What's Cookin'... BETTER THAN TOLLHOUSE COOKIES Preheat oven to 350 degrees. Cream butter and sugars in a large bowl; beat in egg and vanilla. Combine flour, baking soda and salt, blend into creamed mixture. Stir in "Heath" bars. Drop by heaping tablespoonfuls about 2" apart onto an ungreased cookie sheet. Bake 10-13 minutes. Cool 1 minute on pan. Remove to wire rack. *This recipe can also be used for chocolate chips, "Snicker" bars or "M&Ms" in placed of "Heath" bars. Extra.. We order office supplies from a distributor that carries thousands of items. To save time when ordering commonly used items, such as pens, pencils, tape, staples, etc., we went through the catalog and found the item numbers for each product. We then made up a form listing a description and the item number. Taking this one step further, we prepared a fax sheet listing that information and space to add additional items. Now when I need to order all I have to do is fill in the amount needed (or delete an item), print the order and fax it to the supplier. We have a hard copy for my file and I don't have to save it in my computer which allows me to keep my original order form. Chicago Title & Trust Company Strict
Joint Order #1 Escrow Trust Instructions (Earnest Money) & Escrow
Trust Instructions (Sale) (Gap Coverage), are available at the Bar
Center, call: Gloria at 653-7779. For information contact Gloria Norton at DuPage County Bar Association, 126 S. County Farm Road, Wheaton, IL 60187-4597, Telephone 630-653-7779, Fax to 630-653-7870 or E-Mail to: gnorton@dcba.org. |
