November 7, 2016 — When a real estate transaction fails and there is a dispute over who retains the escrow deposit, there are usually provisions in the purchase contract that provide direction on how to resolve the disagreement. Most importantly, when addressing how a dispute is resolved and who resolves it always starts with the answer to this question: Who is holding the funds?
The Florida Realtors/Florida Bar As-Is Residential Contract for Sale and Purchase is the most common form purchase contract used, according to Form Simplicity statistics. Let’s use it to illustrate how this situation might play out.
The As-Is contract has a section in Paragraph 2 to illustrate who the parties agree will serve as escrow agent — the party that will hold the funds. This will either be the real estate brokerage or an escrow agent, such as a title company or a lawyer. (There is no preclusion who is allowed to hold escrow, so in some rare cases it may be another person or entity.)
Escrow holder is not a licensed broker.
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 that is unsuccessful, the parties are required by contract to submit the dispute to mediation. The contract goes on to explain how the mediation must be handled. Many of these disputes go through a mediation process as part of the small claims process if the deposit in dispute is less than $5,000. If the two parties cannot agree how to divide or handle the escrow deposit, it becomes a legal matter.
When a broker is the escrow agent
If the escrow agent is a licensed Florida broker, Florida law comes into play. Under Florida Statute Chapter 475.25 (1) (d), if a broker “in good faith, entertains doubt as to what person is entitled to the accounting and delivery of the escrowed property, or if conflicting demands have been made upon the licensee for the escrowed property, which property she or he still maintains in her or his escrow or trust account, the licensee shall promptly notify the commission of such doubts or conflicting demands and shall promptly:
a.Request that the commission issue an escrow disbursement order determining who is entitled to the escrowed property;
b.With the consent of all parties, submit the matter to arbitration;
c.By interpleader or otherwise, seek adjudication of the matter by a court; or
d.With the written consent of all parties, submit the matter to mediation. The department may conduct mediation or may contract with public or private entities for mediation services. However, the mediation process must be successfully completed within 90 days following the last demand, or the licensee shall promptly employ one of the other escape procedures contained in this section. Payment for mediation will be as agreed to in writing by the parties.”
Most often, the broker acting as escrow agent will submit the dispute to the Florida Real Estate Commission (FREC) under option “a.” The broker will fill out the paperwork and may request statements from the seller and buyer regarding the dispute. FREC will deliberate and either award the deposit to one party or declare it is unable to determine and advise the broker to take the dispute to interpleader. An interpleader is when the escrow holder files suit asking the court to decide which party has a legal right to the funds.
Many brokers misunderstand the role of the entity holding escrow money. Escrow holders are neutral. They simply agree to hold funds and may only release the money if they feel legally allowed and will not be exposed to risk.