Whose Deposit is it Anyway?
As real estate attorneys, we often play many roles in addition to our role as attorneys, including the roles of title insurance agent, closing agent, escrow agent, and sometimes, during especially stressful transactions, therapists! One role we will not play is the role of a judge. This is especially true when the parties notify us that a dispute exists as to who should receive the Earnest Money Deposit ("Deposit") when either party allegedly defaults. So what happens when the parties cannot agree? You might assume that since we are attorneys we will research the facts of the situation, apply said facts to the proper laws, and come to a reasoned legal opinion as to why we have chosen to release to the funds to either the Buyer or Seller. However, Closing Agents - attorneys or otherwise - cannot and should not ever decide who to release the Deposit funds to. That decision must be decided by the parties themselves by written agreement or by a Judge. As you will learn below, the FAR/BAR Residential Contract is written in such a way as to give the parties every opportunity to resolve Deposit disputes themselves. When there is a Deposit dispute, Section 16 of the FAR/BAR Residential Contract states:
(a) Buyer and Seller will have 10 days after the date conflicting demands for the Deposit are made to attempt to resolve such Dispute, failing which, Buyer and Seller shall submit such Dispute to mediation under Paragraph 16(b).
(b) Buyer and Seller shall attempt to settle Disputes in an amicable manner through mediation pursuant to Florida Rules for Certified and Court-Appointed Mediators and Chapter 44, F.S., as amended (the "Mediation Rules"). The mediator must be certified or must have experience in the real estate industry. Injunctive relief may be sought without first complying with this Paragraph 16(b). Disputes not settled pursuant to this Paragraph 16 may be resolved by instituting action in the appropriate court having jurisdiction of the matter. This Paragraph 16 shall survive Closing or termination of this Contract.
To summarize, once the Closing Agent is notified in writing that there is a dispute over the Deposit, the parties have a 10 day window to come to a written agreement regarding who the Closing Agent should release the Deposit to. If they cannot reach an agreement, they must submit the matter to a certified mediator. Your local Realtor® Board can assist you with the mediation process. If after mediation the parties still cannot agree, the Closing Agent may have to give the Deposit funds to the Court system by filing an action referred to as an "interpleader", and let the parties fight over who is entitled to the funds. Essentially, by filing an interpleader action the Closing Agent is telling the court that the Closing Agent is holding property on behalf of third parties, but it does not know to whom it belongs. In addition, this gives the parties an opportunity to present their claims against each other to a judge, who will make the final decision. When filing an interpleader action, the Closing Agent will also request that the court order that attorney's fees and court fees which it incurs be reimbursed out of the Deposit funds. These fees, when combined with any attorney fees a party incurs in presenting their case to a judge, can often end up being much more than the Deposit the parties are fighting over.
The purpose of this Blog is not to delve into the legalities of how Deposit disputes are resolved, but rather to inform Realtors and their customers that when faced with a Deposit dispute the best advice that anyone can give is to try to figure it out yourselves! As discussed above, Closing Agents cannot decide to whom the Deposit is owed. However, if an agreement cannot be reached between the parties, rest assured that there are procedures in place to determine who will receive the Deposit.
If you need assistance working through a Deposit dispute or if you have any questions on this or any other real estate issue, please contact your trusted real estate attorney.
Berlin Patten Ebling, PLLC
Article Authored by Andrew Conaboy, Esq. firstname.lastname@example.org
Thank you Paulette Butcher and Berlin Patten Ebling, PLLC
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