Do escrow agents owe fiduciary duties to third-party lenders? Orlando Millenia v. United Title Explained

In Orlando Millenia v. United Title, the Utah Supreme Court addressed whether an escrow agent owes fiduciary duties to a third-party lender who is not a formal party to the real estate transaction but is expressly identified in special escrow instructions. The Court’s decision significantly expands potential liability for both escrow agents and title companies.

Background and Facts

Orlando Millenia provided a $1 million loan for earnest money in a $6.4 million real estate transaction. Orlando drafted special escrow instructions requiring United Title to obtain specific documents and Orlando’s written approval before disbursing the funds. United Title served as both escrow agent and title insurance producer for Stewart Title and First American Title. When the transaction closed, United Title disbursed the earnest money without following Orlando’s instructions or obtaining the required documents. After the borrower IDR declared bankruptcy, Orlando sued for breach of fiduciary duty and sought vicarious liability against the title companies under Utah Code section 31A-23a-407.

Key Legal Issues

The case presented two primary issues: (1) whether an escrow agent owes fiduciary duties to a third-party lender who is expressly identified in special escrow instructions, and (2) the scope of vicarious liability under Utah Code section 31A-23a-407 for title companies whose producers handle escrowed funds.

Court’s Analysis and Holding

The Court held that escrow agents owe fiduciary duties to intended third-party beneficiaries who are expressly identified in escrow instructions, even if they are not formal parties to the transaction. Orlando was named eight times in the special instructions and had to provide written approval before disbursement, making it more than an incidental beneficiary. The Court also broadly interpreted section 31A-23a-407, holding that title companies are vicariously liable for their producers’ conduct in handling escrowed funds when a title insurance commitment has been ordered, regardless of who ordered it.

Practice Implications

This decision expands potential liability for escrow agents and title companies. Practitioners representing lenders should ensure special escrow instructions clearly establish their client as an intended beneficiary with specific approval rights. Title companies face broader vicarious liability under section 31A-23a-407, which the Court acknowledged creates policy concerns but noted that legislative action would be required to limit the statute’s broad terms.