Time to address scourge of escrow theft

For most Long Islanders, buying a home is the most significant financial transaction they’ll make. And attorney escrow accounts — which can hold funds and deeds to facilitate the closing of a transaction between buyer and seller — have long been trumpeted as the best way to protect a client’s funds.

But a recent Newsday news investigation spotlighted the scourge of escrow-related theft, and the holes in a system that make it easy for unscrupulous attorneys to steal escrow funds from their clients. Human nature being what it is, there’s even a state Lawyers’ Fund for Client Protection, first set up more than 40 years ago, that reimburses those who’ve had their escrow deposits stolen.

Long Island lawyers disappointingly are responsible for more than a quarter of all of that fund’s payouts in its history — more than $70 million from 2,500 cases since 1982. And this is still happening. In January, a Great Neck attorney faced grand larceny charges after allegedly using his clients’ escrow funds for purchases at restaurants, gas stations and more.

This is a multifaceted problem in need of a comprehensive solution. The Newsday investigation has led Assemb. Chuck Lavine, who heads the Assembly’s judiciary committee, to take a closer look. There’s a lot to do.

The fund currently doesn’t have enough money to pay out claims, mostly because the amount of money that goes into it — taken from a percentage of an attorney registration fee — hasn’t changed in decades. State officials and lawmakers should seek to increase the $60 allocation; if the fund has more revenue, it’ll better handle payouts.

But that doesn’t address the larger issues. It’s worth taking a broad look at how regions like Long Island handle escrow, the amount that goes into it, and when it’s used. There are better ways to protect the funds. Other states have tougher standards and procedures to protect the client’s money, and even real estate transactions in upstate New York handle escrow differently than those downstate. In 2024, just $2,000 of the $11.6 million paid out of the lawyers’ fund was attributed to lawyers upstate. Clearly change must come here.

Among the potential solutions: Adding random audits, putting brokers in charge of closings, and bonding the money through a third party.

This isn’t the first time these problems and potential solutions have been discussed. The state protection fund has sought a study of and changes to the downstate escrow situation for two decades. While a spokeswoman for Gov. Kathy Hochul suggested she had no authority over the state lawyers’ fund, Hochul should support changes and use her bully pulpit to advocate for those who’ve suffered from escrow theft.

No one should be protecting the lawyers who are acting badly and stealing. It’s time for state officials and lawmakers, along with attorneys and real estate industry representatives, to back significant fixes to this system. That’s the only way to protect Long Island homebuyers and sellers.