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The Fiduciary

One of the most misunderstood concepts used in the operation of a title and escrow company is term "fidicuary".  Whenever the the title and escrow company hold funds, documents or is asked to assist those involved in the transaction, they are a fiduciary.  The basic definition of a fiduciary is "to act in the capacity of trustee, for the benefit of another". 

"Fiduciary /fed(y)uwsh(iy)ery/. The term is derived from the Roman law, and means (as a noun) a person holding the character of a trustee, in respect to the trust and confidence involved in it and the scrupulous good faith and candor which it requires. A person having duty, created by his understanding, to act primarily for another's benefit in matters connected with such understanding. As an adjective, it means of a nature of a trust; having the characteristics of a trust; analogous to a trust; relating to or founded upon a trust or confidence."

"A person or institution who manages money or property for another and who must exercise a standard of care in such management activity imposed by law or contract; e.g., executor of estate; receiver in bankruptcy; trustee. A trustee, for example, possesses a fiduciary responsibility to the beneficiaries of the trust to follow the terms of the trust and the requirements of applicable state law. A breach of fiduciary responsibility would make the trustee liable to the beneficiaries for any damage caused by such breach." [emphasis added]

There are many examples of fiduciaries. They can be anyone who accepts or assumes the responsibilities to assist others. They could include (1) a bank who holds your money in a savings or checking account; (2) an attorney is fact who represents and acts for the principal; (3) a trustee under a family trust; (4) an attorney who represent their client in a specific action and who accepts certain responsibilities; and (5) an escrow settlement agent.

When the escrow agent accepts the responsibilities to close a transaction, they are accepting the duties to make sure the transaction is completed in a manner acceptable to their client. They must be ever vigilant to assure that they are acting in an acceptable manner. The would mean that the attitude of the client must come first. The escrow agent must act is such a manner as the client/principal would require. This would include the need to following instructions and to make sure the transaction gets completed in an expeditious manner.

There are some who define the escrow duties as a "neutral, third party".  This does not represent the true function of the escrow.  Because the escrow settlement agent must act in the capacity of a fiduciary, the use of the term "neutral" does not full represent the true situation.  The term neutral generally implies a passive nature of the escrow.  However, the escrow agent cannot, to be a fiduciary, act in a passive manner.  The escrow agent has duties and responsibilities to protect all parties to the escrow.  They must assure that each party is treated fairly and receives what is intended in the transaction.  The buyer must receive good and marketable title to the subject property.  The seller must receive the appropriate funds in exchange for their deed.  The lender must receive a valid and priority mortgage loan on the subject property.  As a fiduciary, the escrow agent must assure that each of these parties receive that which they bargained for.

It must be understood by the fiduciary, that the instruction are not alway consistent, and must be reconciled by the opposing instruction of the parties.  Because of the reconciliation responsibility, the escrow agent must in a more reponsible manner.  An escrow agent, to be a fiduciary, must be a "responsible, third party".

 

 

 

 

 

 

 

 

 

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This article was published on Monday 06 November, 2006.

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