How Are Florida Escrow Disputes Resolved?
Even the most mutually advantageous Florida real estate transaction can fall apart before closing. A seller may have failed to satisfy a necessary contingency or otherwise defaulted under the sales contract. A buyer may have failed to meet its obligations under the contact, triggering the seller’s right to terminate. Even though the real property at issue will no longer change hands, there remains the issue of what happens to the earnest money deposited when the contract was signed.
Escrow disputes arise when both the buyer and seller claim a right to the escrowed funds. As each party stakes their position that the money is rightfully theirs, the escrow agent finds himself in the middle. That agent has every interest in resolving the dispute and washing their hands of the money in their control, but will understandably be reluctant to release the funds until they have a definitive agreement or direction from a court that will protect them from liability.
How such disputes are resolved depends on a number of factors. Two of the bigger determinants of how a conflict over escrowed funds will proceed are the form of contract used and whether or not the escrow agent is a licensed Florida real estate broker.
What Does the Contract Say?
As with any contract dispute, the first places to look for guidance as to how the conflict will be resolved are the contract itself as well as applicable Florida law.
According to the Florida Association of Realtors, the most commonly used form in Florida real estate transactions is the Florida Association of Realtors/Florida Bar As-Is Residential Contract for Sale and Purchase (FAR/BAR).
The FAR/BAR contract provides that when an escrow agent receives conflicting demands for a deposit, or if the agent has a good faith doubt as to who is entitled to the deposit, the agent may continue to hold the escrowed funds until the parties agree to its disbursement or until a court issues a final judgment determining the rights of the parties. Alternatively, the escrow agent may deposit the funds with the clerk of the circuit court having jurisdiction of the dispute.
Licensed Broker as Escrow Agent
If, however, the escrow agent is a licensed real estate broker, the FAR/BAR contract and Florida law mandates a different course of action. Section 61J2-10.032(1)(a), Florida Administrative Code, requires a real estate broker to notify the Florida Real Estate Commission (FREC) within 15 business days after receiving conflicting demands on trust funds maintained in the broker’s account. At that point, the escrow agent/broker can request the following methods of resolving the dispute:
- An escrow disbursement order from the FREC directing the agent how to distribute the funds;
- With the consent of all parties, submitting the dispute to arbitration;
- With consent of all the parties, submitting the dispute to mediation
- Seeking adjudication of the dispute by the appropriate court
Of course, both the buyer and seller retain the right to file a civil action to recover the proceeds. Additionally, other form contracts may provide different ways for disputes to be resolved. If you are a buyer or seller involved in a dispute over earnest money, it is important to consult with an experienced real estate litigation attorney to understand your rights and explore your options.
The Pensacola real estate lawyers at McDonald Fleming Moorhead have extensive experience with all aspects of Florida real estate transactions, including the resolution of disputes involving escrowed proceeds. To discuss your issues and concerns, please call our Downtown Pensacola office at (850) 477-0660 or tell us about your needs online.
This is not intended to be legal advice for any specific situation and the reader should consult their attorney regarding their situation.