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What Can You Do to Avoid an Escrow Dispute?An escrow dispute can be an inconvenient, expensive affair. Fortunately, most real estate buyers and sellers never need to be involved in one. The most common type of escrow dispute involves competing claims on earnest money. This is a sum that a buyer of real estate places in trust to indicate good faith commitment to completing the transaction. An earnest money deposit is a standard feature of most real estate deals. The amount required is often set by the seller, but may also be negotiable between buyer and seller and usually tends to be about 1 or 2 percent of the purchase price. Earnest money is commonly held by the seller’s broker or a title company. The need for a third party to hold earnest money in trust is why the majority of real estate transactions require an escrow arrangement. When the transaction is properly completed, funds and escrowed items such as the deed are distributed to the parties at closing, with earnest money commonly applied toward the buyer’s down payment and closing costs. How Does an Escrow Dispute Arise?In cases where one of the contracted parties is unable or refuses to close, the transaction becomes a failed real estate contract. If both parties are unwilling to sign a written authorization instructing the escrow agent as to the release and disbursement of earnest money funds being held, this constitutes an escrow dispute. Both the buyer and the seller claim that they are entitled to the earnest money or contract binder held in escrow. Agents for each party issue contradictory instructions to the escrow agent. In order to avoid liability, the agent will freeze the escrow account until the dispute is resolved. Realtors who find their clients in an escrow dispute must be careful not to offer legal advice. Best practice is to refer clients to the sale contract for relevant information and instructions. Stay in close contact with the escrow agent and the other party in the failed contract, and keep your client updated on the situation. Buyers or sellers in this situation should ensure they have thorough knowledge of the contract, and rely on their realtor and possibly an attorney to guide them through the conflict. How are Escrow Disputes Resolved?A real estate purchase contract usually includes provisions that address the resolution of escrow disagreements. During the process of entering into the contract, buyer and seller should be made aware as to who will be managing the escrow account. Each party must read the contract carefully, noting provisions regarding escrow and related matters, and turning to their realtor or attorney with any questions. According to the Florida Association of Realtors, the Florida Realtors/Florida Bar As-Is Residential Contract for Sale and Purchase (FR/BAR) is the most common purchase contract used in Florida. The FR/BAR, Paragraph 2, Section (a) provides space for entering details regarding escrow. The initial deposit amount and delivery instructions including payment date and the selected Escrow Agent along with pertinent name and contact information are identified and available to both parties in the contract. The Escrow Agent is responsible for holding funds, and is most often the seller’s real estate brokerage, the title company retained for the transaction, or an attorney. There are no exclusions as to who is allowed to hold escrow, so various persons or entities may sometimes be encountered. If a dispute arises and the Escrow Agent is a title company, attorney, or anyone other than a licensed Florida broker, the dispute is initially approached as a civil matter. If the FR/BAR is in use, Sections 13, 15, 16, and 17 provide a general outline of default and dispute resolution procedures. Section 16 specifies that “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).” In cases where mediation fails, the escrow dispute becomes a legal matter and “…may be resolved by instituting action in the appropriate court having jurisdiction of the matter.” When the escrow agent is a licensed Florida real estate broker, an escrow dispute must be resolved as per § 475.25 (1) (d), Florida Statutes. If the license holder entertains doubt as to who is entitled to the escrowed property, or if conflicting demands have been made for the escrowed property, the licensee must promptly notify the Florida Real Estate Commission of such doubts or conflicting demands and also proceed with one of the following options:
Key Steps for Avoiding an Escrow DisputeOf course, the best way to handle an escrow dispute is to never get involved in one. Although some disputes arise out of causes that are beyond a buyer’s or seller’s control, many disputes are precipitated by simple carelessness or misunderstanding. Therefore, as noted above, detailed reading and clear understanding of all purchase contract provisions and details, including all information regarding earnest money, is of primary importance. Here are some further steps that will help keep you clear of escrow disputes:
Get Professional AdviceA real estate purchase is the largest investment most people will ever make. Real estate transactions, whether one is on the buy- or sell-side, are complex and can be confusing, but they do go smoothly in the majority of cases. Still, it never hurts to have professional help on your side. A good real estate lawyer can be of help during the initial offer and negotiation processes, then can ensure that you have full understanding of any sales/purchase contract including matters of escrow and earnest money. Particularly in cases involving a substantial earnest money deposit, it is wise to enlist the help of an experienced attorney. This dramatically reduces the possibility of becoming entangled in an escrow dispute, and if such an unfortunate situation does arise, you will be prepared to protect your interests. The team at Barry Miller Law has intimate familiarity with FR/BAR Contracts, escrow procedures including dispute mediation and resolution, and all other aspects of Florida real estate law. If you or someone you know needs assistance with drafting a real estate contract or reviewing a contract to ensure that legal protection is in place, call Barry Miller Law at 407-423-1700 or email us at to schedule a consultation. Visit our Blog for more helpful information on real estate transactions. Which Florida entity investigates escrow account records?The Florida Real Estate Commission only has jurisdiction over the real estate licensee and can only get involved when the licensee is holding the escrow funds in the broker's trust account (not the seller, an attorney or a title company).
Which institutions in the state of Florida are approved depositories for earnest money quizlet?Which of the following is an approved depository for earnest money? An escrow account or trust account may be in a commercial bank, title company having trust powers, credit union or savings association located in the state of Florida, and not in a stock or bond brokerage house.
Which of the following tasks would require a real estate license in Florida?Which of the following tasks would require a real estate license? Host an open house. Administrative tasks are fine, but anything that involves activities normally performed by a licensee (such as meeting with the public to show real estate) would require a license.
Which item will show as a credit to the buyer on a closing statement quizlet?The Sale/Purchase Price: The total consideration (sale or purchase price) for the property must be paid by the buyer to the seller at closing. This will appear on the buyer's closing statement as a charge and on the seller's closing statement as a credit.
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