Escrow and simultaneous closings when one funder pays another

Two things have to happen at once: the new money has to fund and the old position has to be paid. They cannot actually happen at once, so somebody holds the money in between. The whole design question is who.

The three structures

The net funding arithmetic

The number that matters is not the gross facility. It is what is left after fees and payoffs.

• Gross: $120,000.00
• Less origination at 3%: $3,600.00
• Less filing, wire and documents: $875.00
• Net funded: $115,525.00
• Less payoffs: $79,100.00
• Cash to the business: $36,425.00

Now add the failure mode. If the first payoff letter expires and two more daily debits of $700 clear before the wire lands, that payoff becomes $51,800 and cash to the business drops to $35,025.00 — a $1,400 swing decided entirely by calendar, not by negotiation.

Build the table before the closing, with a named figure for every line, and require the incoming funder to produce their own version. Where the two disagree, one of you has a fee the other does not know about.

The disbursement authorisation

Whatever the structure, there should be one document that names every payee, every amount and every account. It gets called a disbursement authorisation, a settlement statement, a funding statement or a closing statement. Read it for six things.

What escrow actually protects against

Escrow does not make anyone pay. It makes the release of money conditional on documents the escrow agent can check. Its value is in the conditions, so the conditions have to be written to cover the specific failure you are worried about.

Three that are worth naming explicitly.

• Release of the payoff only against a payoff letter dated within its validity window, so stale letters cannot be funded against.
• Retention of a stated sum — say $2,500 — until a UCC search run 30 days after closing shows the terminations filed. This is the single most effective clause available to you, because it gives the outgoing funder a financial reason to file the UCC termination rather than forget it.
• Return of everything to the incoming funder if the closing does not complete within a stated number of days, so money does not sit in limbo.

Escrow costs a fee. On a transaction clearing two positions and involving a lien release you need to prove later, it is usually a small fee against a real risk.

The order of operations

1. Get payoff letters from every outgoing position, each good through the same date.
2. Run a UCC search so you know every filing of record, including ones from funders you have already repaid and forgotten.
3. Build the net funding table and reconcile it with the incoming funder's version.
4. Agree the structure. Ask for direct disbursement; accept escrow; push back hard on funding to your own account.
5. Sign the disbursement authorisation with every payee, amount and condition named.
6. Fund early in the week, with a per-diem buffer.
7. Collect paid-in-full letters from each outgoing funder.
8. Re-run the UCC search 30 days later and, if a termination is missing, use the escrow holdback while you still have it.

What to refuse

Refuse a closing where any payoff amount is described as approximate. Refuse a disbursement authorisation that does not name the payee entity. Refuse to release an escrow holdback before the follow-up lien search. And if the only structure offered is money to your account, price the risk: hold the payoff funds in a separate account the outgoing funder does not debit, and send the wire the same morning it arrives.

These structures and the documents behind them vary by funder and by state, and what a particular clause does depends on its exact wording. This is a description of how the pieces fit together, not legal advice.