How aircraft escrow works.

Most people buying their first aircraft assume the closing works like a car sale with more zeros. Money moves, keys change hands, someone files paperwork. It does not work that way, and the reason is simple. With an aircraft, the debts follow the machine, not the person who signed for them.

Escrow exists to solve that problem. Here is what it actually does.

What escrow is

Escrow is a neutral third party that holds the money and the documents until both sides have done what they promised. The buyer's deposit goes to the escrow agent, not to the seller. The signed bill of sale goes to the escrow agent, not to the buyer. Nothing is released to either side until the conditions in the purchase agreement are met.

That neutrality is the point, and it is also the limit. The escrow agent is not your advocate.

They will not tell you the price is high or the logbooks are thin. They execute instructions exactly as written, which means the instructions have to be right before they are signed.

Why the title search comes first

Aircraft ownership and lien records in the United States are kept by the FAA Civil Aviation Registry in Oklahoma City. That is why nearly every aircraft escrow and title company sits in the same city. They walk the record.

A title search reads that record for the aircraft by serial number and registration number: who owns it, what has been filed against it, and what was never released. For larger and international aircraft, the search also covers the International Registry created under the Cape Town Convention, which records interests the FAA file will not show.

The thing to understand is that a current FAA registration is not a certificate of clean title. The FAA records what is filed. It does not decide who owns the aircraft, and it does not guarantee the aircraft is free of claims. Problems that commonly surface in a search include:

• A bank loan that was paid off but never released on the record.
• A tax lien against a prior owner.
• A prior sale that was documented badly, leaving a gap in the chain of title.
• An unrecorded mechanic's lien from a shop that did work and was not paid.

That last one is the dangerous category. Under many state laws the claim can attach to the aircraft without appearing in any registry until the shop files it. If any of that exists and you close anyway, you have bought it. The seller's promise to clear it later is worth exactly as much as the seller.

What the escrow agent does

The escrow agent holds the deposit under a written escrow agreement, orders and reports the title search, collects the closing documents from both sides and holds them undelivered, confirms the purchase funds have actually arrived, files the bill of sale and registration application with the FAA, and then releases funds to the seller.

They also make the exchange simultaneous. Without escrow, someone has to go first, and going first is where buyers lose money.

Escrow fees are small next to the purchase price, usually a few thousand dollars, and are often split between buyer and seller. Escrow is also not the same thing as title insurance. Insurance is a separate product you can buy on top of a clean search, and on a larger aircraft it is usually worth the conversation.

The closing sequence

The order matters more than any single step.

• The purchase agreement is signed and the deposit is wired into escrow.
• The title search is ordered immediately, so problems surface early rather than the week of delivery.
• The pre-buy inspection is performed at a facility the buyer chose.
• Discrepancies are listed, priced and negotiated. The aircraft is corrected, or the price is adjusted.
• The buyer gives technical acceptance.
• Closing documents are signed and delivered into escrow, where they sit undelivered.
• The title search is brought current on the day of closing.
• The purchase funds are wired to escrow.
• The delivery location is confirmed, because where the aircraft sits at closing can carry a sales and use tax consequence.
• Both sides authorize release. The escrow agent files with the FAA and disburses the funds.

Almost every bad aircraft purchase we have seen involved doing one of those steps out of order, usually paying before the title was clear, or accepting the aircraft before the discrepancies were priced.