As you can see, the consensus surely is that the buyer's agent should not have released the keys to the buyers until their loan actually funded. You can't wait for the recording, because, depending upon where you are, that can take time. The seller hasn't sold the house until the money changes hands...FUNDED!
The real problem here is who gave the buyer's agent the keys to the home? The buying side of the transaction should have access to the house for a final walk-thru, but not retain possession of keys until the actual closing. If your realtor gave the buyer's agent the keys, that was a mistake as well -- or if the title agent was not given explicit instructions when to hand out keys, that is a mistake on the listing agent's side as well.
I am the Professional Standards chairman for our Board of Realtors, and I am not sure this case would be forwarded to us for a hearing, if it were filed, because there does need to be more clarification. As tough as this is, now you know how critical it is to have all procedures clearly spelled out in advance. If it is any consolation, however, the buyer's most likely would have been liable, if the coverage date for insurance, the actual date of closing on the bank's loan papers, and all the documents still read the actual date of closing, not the funding date. That means if something happened to damage the property, they would have been the"constructive" owners and therefore, liable. I am not an attorney, but procedurally, in closings, that is the case.
Hope this helps.
Carol Wilsey, Broker-Owner
Exceptional Properties of SW Florida