Escrow disputes arise when the buyer and seller in a contract for the sale of real estate do not close on their contract, and cannot agree to the division of the deposit paid by the buyer into escrow. This deposit is sometimes referred to as an “earnest money” deposit and is used to secure the buyer’s performance of a real estate purchase agreement. Escrow disputes crop up when a real estate transaction does not get completed and both the buyer and seller feel they are entitled to the deposit.
As a real estate litigation attorney in Venice Florida, I have had the opportunity to work with all kinds of disputes regarding escrowed funds for real estate contracts. I have represented buyers, sellers, and the escrow holders themselves. What follows is a general overview of how these disputes are handled.
Look to the Contract
When faced with an escrow deposit dispute the first step is to look to the language of the purchase agreement contract regarding dispute resolution. This language will almost always control.
Explore Settlement
Usually the most cost effective and efficient solution is to work with the other side to settle the dispute; especially if the deposit in question is a smaller sum. The economic implications of spending $250-$350 an hour on a lawyer becomes hugely impractical with small disputes. Even a $10,000.00 deposit can be quickly evaporated if a litigation track is taken. When I am asked to represent a buyer or a seller in a deposit dispute, 9 times out of 10 an early settlement that quickly resolves the dispute is in the best interests of the client. There are those certain cases where it may make more sense to litigate, and sometimes settlement is not an option, but for most residential escrow deposit disputes the best way to approach the situation is to allow cooler heads to prevail and reach some form of a compromise.
Mediation may also be an option and a way for the parties cost effectively untangle the case. The beauty of mediation is that you can walk in to mediation with a fairly substantial legal problem, and walk out hours later with a solution without the expense and uncertainty of a trial.
When Negotiations Fail…
When negotiations fail and it becomes obvious that the buyer and seller will be unable to reach a compromise, the escrow holder will have no choice but to move down the litigation track. This is where the dispute resolution clause of the contract may receive special scrutiny. If the contract requires the parties to submit to binding arbitration or to submit the dispute to the Florida Real Estate Commission, then the contract will control the next steps.
In many cases, the escrow holder will have to petition the Court to request that the funds be deposited into the Registry of the Court with the Clerk of Court. This is accomplished by filing a lawsuit called an “Interpleader”. Florida Rule of Civil Procedure 1.240 governs interpleader actions. The interpleader suit establishes that the deposit holder is holding the funds in escrow per a real estate contract, that the contract did not make it to closing, that the buyer and the seller are both requesting that the deposit holder give them the deposit, and that the deposit holder is unable to determine who the deposit rightfully belongs to (or doesn’t want to make a decision, get sued, and potentially have to pay the deposit out twice). Therefore, the deposit holder is requesting that the Court take over and determine who the deposit should rightfully go to.
If the interpleader suit is properly articulated, the deposit holder should be allowed to interplead (deposit) the funds into the registry of the Court without too much trouble. Many times the contract will allow the lawyer representing the escrow agent to collect their attorney’s fees and costs in connection with filing the interpleader suit. Once the escrow funds have been successfully interplead into the registry of the Court, the holder of the deposit will be able to walk away from the dispute. The buyer and seller will be left to litigate the matter to conclusion, and a judge will ultimately decide what happens to the money.
Real Estate Escrow Deposit Disputes – Final Thoughts
I hope that this article provided you with some overview of how disputes regarding escrow funds in real estate contracts are handled. Each dispute is different, so there is no “one size fits all” answer, but with any luck this shed some light on the subject and how these situations are generally handled.
If you are a buyer, seller, or escrow holder in the middle of a real estate dispute, please feel free to contact me to discuss your case.
