📋 What is an Escrow Dispute?
An escrow is a neutral third-party arrangement where funds, documents, or property are held pending the fulfillment of contractual conditions. In California, escrow companies are licensed and regulated by the Department of Financial Protection and Innovation (DFPI). Escrow disputes arise when there are disagreements about fees charged, how funds should be disbursed, delays in releasing funds, or when escrow holders fail to follow proper instructions.
When to Use This Guide
Use this guide if you have a dispute with an escrow company or escrow holder involving:
💰 Unauthorized Fees
Escrow charged fees not disclosed or agreed upon in the escrow instructions
🚫 Disbursement Errors
Funds were released to the wrong party or in incorrect amounts
⏲ Delayed Fund Release
Escrow is unreasonably holding funds after closing conditions are met
📄 Instruction Violations
Escrow failed to follow the written escrow instructions
👍 What You Can Recover
- Refund of unauthorized fees - Any fees charged without proper disclosure or authorization
- Wrongfully withheld funds - The full amount that should have been disbursed to you
- Interest on delayed funds - Interest for the period funds were improperly held
- Consequential damages - Losses caused by escrow errors (failed transactions, penalties, etc.)
- Attorney fees - If your escrow instructions contain a fee provision
Common Escrow Dispute Scenarios
💰 Unauthorized or Excessive Fee Charges
▼Escrow companies must disclose all fees before you sign escrow instructions. If fees appear on your settlement statement that were not disclosed, or if fees exceed the quoted amounts without explanation, you may be entitled to a refund. California Financial Code requires escrow companies to provide clear fee disclosures and prohibits deceptive practices.
🚫 Improper Fund Disbursement
▼Escrow holders have a strict duty to follow written escrow instructions. If funds were released to the wrong party, released before conditions were satisfied, or released in incorrect amounts, the escrow company may be liable for the error. This is a breach of their fiduciary duty as a neutral stakeholder.
⏲ Unreasonable Delays in Releasing Funds
▼Once all escrow conditions are satisfied, the escrow holder must promptly disburse funds according to the instructions. Unreasonable delays - especially when holding funds while disputes are manufactured or while seeking additional documentation already provided - can entitle you to interest and damages.
🔒 Refusal to Release After Cancellation
▼When a transaction is cancelled and there is a dispute over who is entitled to the funds, escrow companies often require mutual release instructions. California Civil Code 1057.3 provides a specific procedure for demanding release of disputed funds. If escrow is improperly refusing to release funds that clearly belong to you, you have legal remedies.
📄 Failure to Follow Instructions
▼Escrow holders are agents bound by written instructions. They cannot deviate from those instructions without written consent from all parties. Common violations include closing before all conditions are met, failing to obtain required documents, or acting on oral instructions that contradict written ones.
⚠ Time is Critical
California has a 4-year statute of limitations for written contract claims and a 2-year limit for negligence claims. Additionally, DFPI complaints should be filed promptly while evidence is fresh. For escrow matters involving real estate transactions, evidence can become stale quickly as parties move on and records are archived.
⚖ Legal Basis
California has comprehensive laws governing escrow companies and protecting consumers from escrow holder misconduct. These statutes and legal principles support your claim.
Key California Statutes
California Financial Code 17000-17701 (Escrow Law)
The California Escrow Law governs the licensing, operation, and conduct of escrow agents. It establishes requirements for trust fund handling, record keeping, fee disclosures, and prohibits unfair practices. Violations can result in license discipline and civil liability.
California Civil Code 1057
Defines escrow as a grant deposited with a third party to be delivered upon the performance of a condition. This statute establishes the fundamental nature of escrow as a conditional delivery arrangement, requiring strict compliance with escrow conditions.
California Civil Code 1057.3
Provides the procedure for releasing disputed funds held in escrow. When parties cannot agree on disbursement, this statute allows a party to demand release of funds, triggering a 30-day objection period. If no valid objection, escrow must release the funds.
DFPI Licensing Requirements
Escrow companies must be licensed by the Department of Financial Protection and Innovation (DFPI) unless exempt (such as title companies, banks, or attorneys). Operating without proper licensing is a criminal offense and provides additional grounds for civil recovery.
Escrow Holder Fiduciary Duties
As a neutral stakeholder, escrow holders owe fiduciary duties to all parties. These include:
- Duty of strict compliance - Must follow written escrow instructions exactly
- Duty of neutrality - Cannot favor one party over another
- Duty of care - Must exercise reasonable skill and diligence
- Duty of disclosure - Must disclose all fees and material information
- Duty to safeguard funds - Must properly maintain trust accounts
💡 The Neutral Stakeholder Role
California courts have consistently held that escrow holders are "dual agents" who owe fiduciary duties to all parties to the escrow. They cannot take sides in disputes between the parties and must act only upon proper written instructions or court orders. When they breach these duties, they can be held liable for resulting damages.
Elements You Must Prove
- Valid escrow relationship - You were a party to the escrow
- Escrow instructions existed - Written instructions governed the escrow
- Breach of duty - Escrow holder violated instructions, fiduciary duty, or statute
- Causation - The breach caused your damages
- Damages - You suffered quantifiable harm
⚠ DRE vs. DFPI Licensing
Not all escrow services are regulated the same way. Independent escrow companies are licensed by DFPI. However, escrow services provided by real estate brokers (DRE-licensed), title companies, banks, and attorneys are exempt from DFPI licensing but still subject to oversight by their respective regulators. Know which agency oversees your escrow holder.
✅ Evidence Checklist
Gather these documents before sending your demand letter. Click to check off items as you collect them.
📄 Escrow Documents
- ✓ Signed escrow instructions (all versions/amendments)
- ✓ General provisions and escrow terms
- ✓ Fee schedule or good faith estimate
- ✓ Escrow number and escrow officer contact info
💰 Financial Records
- ✓ Settlement statement (HUD-1 or Closing Disclosure)
- ✓ Wire transfer confirmations or deposit receipts
- ✓ Bank statements showing funds sent/received
- ✓ Invoices or fee statements from escrow
📩 Communications
- ✓ All emails with escrow officer/company
- ✓ Written correspondence and faxes
- ✓ Notes of phone conversations with dates/times
- ✓ Demands already sent requesting resolution
🔍 Transaction Documents
- ✓ Purchase agreement or underlying contract
- ✓ Amendments to the purchase agreement
- ✓ Cancellation or release documents
- ✓ Evidence conditions were satisfied/unsatisfied
🔒 Preserve All Evidence
Keep originals of all documents. Request copies of the complete escrow file from the escrow company - you are entitled to your file. Screenshot emails and save all electronic communications. Document all phone calls with follow-up written confirmation. Evidence of when conditions were satisfied is crucial.
💰 Calculate Your Damages
In escrow disputes, your damages depend on the type of escrow holder misconduct. Here is what you may recover.
| Category | Description |
|---|---|
| Unauthorized Fees | Full refund of any fees charged without proper disclosure or authorization |
| Wrongfully Withheld Funds | The amount that should have been disbursed to you |
| Interest on Delayed Funds | Interest at the legal rate (10% per annum) for the delay period |
| Consequential Damages | Losses directly caused by escrow errors (failed transactions, penalties, additional costs) |
| Attorney Fees | If escrow instructions contain attorney fee provision, or in certain statutory claims |
💡 Interest Calculation
California law provides for interest at 10% per annum on money wrongfully withheld (Civil Code 3289). If your escrow company is holding $50,000 for 6 months without justification, that is $2,500 in interest alone. Calculate your interest from the date funds should have been released.
📊 Sample Damages Calculation
Example: Unauthorized Fees + Delayed Disbursement
💰 Consequential Damages May Be Significant
If escrow errors caused your transaction to fail, you may have substantial consequential damages: inspection costs, appraisal fees, loan application fees, moving expenses, temporary housing costs, price increases on alternative properties, and more. Document all costs caused by the escrow holder's breach.
📝 Sample Language
Copy and customize these paragraphs for your demand letter.
🚀 Next Steps
What to do after sending your demand letter.
Expected Timeline
Days 1-5
Escrow company receives and reviews your demand letter
Days 5-15
Escrow company responds or requests additional information
Days 15-30
Negotiate resolution or proceed to regulatory complaints
30+ Days
Civil Code 1057.3 objection period expires; escalate to court if needed
If They Refuse to Resolve
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File DFPI Complaint
The California Department of Financial Protection and Innovation (DFPI) licenses and regulates escrow companies. File a complaint at dfpi.ca.gov. DFPI can investigate, order restitution, and impose license discipline. This is often the most effective leverage.
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Interpleader Action
If there is a genuine dispute over who is entitled to escrow funds, the escrow company may file an interpleader action - depositing the funds with the court and letting the parties litigate. You can also petition the court to compel interpleader if escrow is unreasonably holding funds.
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Small Claims Court (Up to $12,500)
For fee refunds or smaller damage amounts, small claims court is fast, inexpensive, and does not require an attorney. File in the county where the escrow company is located or where the transaction occurred.
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Superior Court Lawsuit
For larger amounts or complex disputes, file in Superior Court. Claims may include breach of fiduciary duty, breach of contract, negligence, and violation of Financial Code. If your escrow instructions have an attorney fee clause, the prevailing party can recover fees.
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Mediation/Arbitration
Some escrow instructions contain arbitration clauses. Check your escrow instructions for dispute resolution requirements before filing suit.
⚠ DRE-Licensed Escrows
If your escrow was handled by a real estate broker (not an independent escrow company), complaints go to the California Department of Real Estate (DRE), not DFPI. Similarly, bank escrows are overseen by federal and state banking regulators. Attorney escrows may be reported to the State Bar. Identify the correct regulatory authority for your escrow holder.
Need Legal Help?
Escrow disputes can involve complex issues of fiduciary duty and agency law. Get a 30-minute strategy call with an attorney to evaluate your case and discuss next steps.
Book Consultation - $125California Resources
- DFPI (Dept. of Financial Protection): dfpi.ca.gov - File complaints, verify escrow licenses
- California DRE: dre.ca.gov - For broker-operated escrows
- California Financial Code: leginfo.legislature.ca.gov - Full text of Escrow Law (17000+)
- Small Claims Court: courts.ca.gov/selfhelp-smallclaims.htm
- State Bar Lawyer Referral: calbar.ca.gov
- CFPB: consumerfinance.gov - For complaints about RESPA/closing disclosure violations