Escrow fraud is a rare occurrence, but you should always have a reputable law firm hold your deposit.
How safe is my deposit when it is in an escrow account? I've read about an attorney who disappeared with his client's funds—should I be concerned?
Escrow fraud is quite unusual, our experts say, but there are steps you can take to protect yourself.
First, some explanation: You may be most familiar with escrow in the context of buying: Buyers put their deposit in an escrow account with a neutral third party, which holds it until the time of closing to safeguard it. There are other scenarios that involve escrow accounts, such as maintenance charges for co-op shareholders.
"In my 36 years in the business in Manhattan, I have only heard of fraud with one attorney many years ago who was well regarded," says Deanna Kory, a broker with Corcoran. "It is not a common occurrence. However, buyers who are concerned should know "that more established the firm and well regarded, the better."
Occasionally, though, high profile cases of fraud do happen. Recently, a real estate attorney disappeared, and his clients are worried about the whereabouts of millions of dollars placed in escrow accounts he managed, according to The Real Deal.
Still, such incidents are highly unusual, because stealing escrow deposits comes with heavy consequences for lawyers.
"I think most people are too honest or too scared to mess with it. It's one of the things that gets you disbarred, and it's criminal," says Sam Himmelstein, a lawyer who represents residential and commercial tenants and tenant associations (and FYI, a Brick sponsor). "But you are relying on the lawyer to do the right thing," he says.
Despite the rarity of escrow fraud, some buyers do feel nervous about the security of their deposit. They can protect themselves by drawing up an escrow agreement, Himmelstein says.
Should the worse happen, buyers who end up in this unfortunate situation would work with a lawyer to sue the offending attorney and recover their losses; there is also a state fund that can help them get back their stolen deposits.
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