Escrow Holdbacks: A Lifebuoy For A Troubled Closing

by Rich Vetstein on May 13, 2013 · 1 comment

in Closings, Construction Law, Massachusetts Real Estate Law, Purchase and Sale Agreements, Title Defects

2691601505_c65b897bcc.jpgYou have been eagerly awaiting the closing of your new construction home, but alas, the builder has not been able to complete the landscaping, walkway and driveway by the closing and there is a two page punch-list of other incomplete work. You have already hired a moving company and packed all of your family’s stuff. Anxious thoughts race through your mind…Can we close on time? What will my lender do about the incomplete work? Should I be in panic mode?

Throw Me An Escrow Holdback Agreement!

In this situation, your closing attorney should recommend an escrow holdback agreement which, if approved by your lender, will enable the transaction to close as scheduled. The parties will sign a standard escrow holdback agreement at closing, with an agreed upon portion of the seller sale proceeds held in escrow (usually by the closing attorney) pending completion of the unfinished work. Escrow holdbacks are fairly common in Massachusetts real estate practice. They can be used to address all types of situations which would otherwise delay a closing: approval of a new septic system, unfinished construction/repair work, missing mortgage discharges and title issues, or any other obligation the seller should have completed for the closing.

Lender Approval Often Required

If you are using conventional mortgage financing, you will usually need to get your lender’s approval of the escrow holdback agreement, and it must be shown on the HUD-1 Settlement Statement. Some lenders and some loan programs will not allow an escrow holdback, so your closing may have to be pushed back. For incomplete new construction work, some lenders will require an inspection before allowing for the release of the escrowed funds, and they will typically require that 1.5 times the cost of the work be placed in escrow.

Builders Playing Hardball

Recently, I’ve seen some new construction builders refuse to agree to any escrow holdbacks in their purchase and sale agreements. This is ridiculous in my opinion, and should not be agreed to. Rarely does a new construction building complete a project without some unfinished work or punch list items. I typically counter with a language allowing an escrow holdback if the buyer’s lender insists upon it.

For these situations, “money talks”, and withholding seller funds is often the only way to ensure that the seller does what he or she has agreed to do.


RDV-profile-picture-larger-150x150.jpgRichard D. Vetstein, Esq. is an experienced Massachusetts real estate closing attorney. If you have any questions about the Massachusetts closing process or escrow holdback agreements, please contact him at or 508-620-5352.

  • Chris Gonsalves

    Hi – I have found this article in a search. It’s now 2 years past your writing, and have a question. We closed on our house on 6/29/15. Due to an issue with a leaky skylight – which we found on the day of closing after a bed was moved there was some staining on the wall. The attorneys worked out a holdback agreement. We agreed to withhold $5K. The holdback agreement states that

    “the parties shall select a reasonably and mutually acceptable contract promptly after closing and shall use good faith efforts to have the work completed within 30 calendar days. In any event, if the mutually acceptable contractor does not complete said repairs in a good and workmanlike manner by August 29, 2015, time being of the essence, the Buyer may engage a contractor that is satisfactory to the Buyer to complete the work.”

    We had been begging our attorneys as to the status of the request and for quotes for the better part of July 2015. Finally, our attorney finally received one quote after the 30 days had passed. It’s September 15, 2015 and there is nothing happening. Our $5,000 is still hanging out in escrow. The quote for the skylight was $1500.

    What recourse do we have as the Sellers at this point? We are happy to pay – and end it all… but there is nothing happening on the Buyers’ side.

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