Escrow deposit disputes arise when the buyer and seller in a real estate transaction do not close on their contract, and cannot agree to the division of the deposit paid by the buyer into escrow. Typically, the escrow agent will request buyer and seller execute a release of deposit and cancellation of the contract, and, once it is signed, will disburse the funds. Generally, the seller can keep the earnest money deposit if it is shown that the buyer violated the terms of the contract. However, the situation may not be that clear leading to both the buyer and seller feeling they are entitled to the earnest money deposit.
When dealing with an escrow deposit dispute one must first look to the language of the purchase agreement contract regarding dispute resolution. The language of the contract will almost always control. Most importantly, the type of resolution will depend on who is holding the earnest money deposit in escrow. This will either be the real estate brokerage or an escrow agent, such as a title company or a lawyer.
If the escrow agent is a licensed Florida broker, Florida law comes into play. Pursuant to Section 475.25(1)(d), Florida Statutes, if a broker entertains doubt in good faith as to who is entitled to the escrowed property or if conflicting demands have made for the escrowed property, the escrow agent shall notify the Florida Real Estate Commission (FREC) of such doubts or conflicting demands and shall:
- Request FREC issue an escrow disbursement order determining who is entitled to the escrowed property;
- Submit the matter to arbitration or mediation (with the consent of all parties); or
- Seek court adjudication of the matter by interpleader or otherwise.
In most cases, the real estate broker acting as escrow agent will submit the dispute to FREC under the first option. FREC will either award the deposit to one party or rule that it cannot determine and advise the broker to file an interpleader lawsuit whereby the deposit is put into a court registry and a court will decide which party has legal right to the deposit.
If the escrow agent is a title company, lawyer or someone other than a real estate broker, the dispute is handled as a civil matter initially. The dispute resolution section of the As-Is contract specifies 10 days for the buyer and seller to attempt to resolve the dispute on their own. If the parties can’t agree, the parties must submit the dispute to mediation. If the two parties still cannot agree how to divide or handle the escrow deposit, the escrow agent may file an interpleader action and allow the parties to litigate as to entitlement.
This analysis describes only part of the picture. Once the escrow agent files the interpleader action and deposits the escrowed funds into the court registry, the court will take the escrow agent’s attorney’s fees and court costs directly from the deposit reducing the amount available to the prevailing party. Additionally, if the deposit is to be disbursed to the seller and the seller signed a listing agreement, then a determination must be made as to the portion of the deposit (typically 50%) that the real estate broker is entitled to.
Whether you are the buyer, seller, escrow agent, or the broker in a real estate transaction, it is critically important to retain a knowledgeable, experienced real estate attorney like the Law Offices of Jarrett R. Williams, P.A. to vigorously defend your legal rights.
Call the Law Offices of Jarrett R. Williams, P.A. today to have our attention to detail and real estate transactional and litigation experience provide you with the insight to achieve solutions to your most complex real estate matters.
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