Q: I recently signed an offer to purchase a condominium. I gave the Realtor a deposit check for $10,000, but asked him to hold it until I could get some money into the account. He said he could not hold it but had to deposit it immediately. Can you explain how real estate brokers handle escrow deposit?
A: Florida Statutes and Administrative Rules provide comprehensive and detailed requirements for real estate escrow deposits. The escrow rules are designed to protect the public, as mishandling escrow deposits can immediately and adversely impact one or more parties to a real estate transaction. Licensed real estate brokers and associates are granted a monopoly with respect to real estate sales and rentals, so they are charged with a high degree of responsibility to the public.
The Florida Real Estate Commission (FREC) adopted a rule that mandates real estate sales associates give their broker or employer any deposit no later than the end of the next business day following receipt of the deposit. The broker has three business days to place the deposit into an escrow account. The escrow account is managed by the broker and the broker has responsibility for the funds in the escrow account. The broker must also be the signer on the account.
The escrow held by the broker must be provided at closing on purchase of the property or otherwise delivered to the party who has a legal right to the deposit. That does not mean the buyer can demand the deposit at any time. However, the buyer could request the deposit if the seller refuses to sign the offer or breaches the contract. If the broker disburses the deposit and is later found to have made a wrong decision as to entitlement, the broker can be liable for damages. Hence, a broker will rarely release the deposit until all parties to the transaction agree or the broker gets an order determining entitlement.
If the broker has any doubt about entitlement to the escrow account, the broker can ask FREC to issue an escrow disbursement order. By statute, the escrow account broker is the only person who can request the disbursement order. If the broker disburses the escrow in accordance with the disbursement order, the broker will not be responsible for damages if later court action determines that the disbursement was incorrect. If the disbursement order is later held to be incorrect, the party damaged by the disbursement can recover up to $50,000 from Florida’s Real Estate Recovery Fund in event the party is unable to recover the money that improperly disbursed. That may not be much comfort to someone in a real estate transaction seeking a deposit bigger than $50,000, so in many cases the escrow disbursement order may not be in the best interest of a buyer or seller.
As an alternative, the broker can file a court action known as interpleader. In the interpleader action, the broker asks the court to determine which party is entitled to the deposit. The buyer and seller than litigate entitlement and the court issues a judgment.
Any party with an interest in the deposit can also file an interpleader action. It is not limited to the holder of the money. The interpleader can be filed even if the broker has requested an escrow disbursement order from FREC. If the court reaches judgment before an escrow disbursement order is issued, the broker notifies FREC that the case has ended and FREC closes its file on the escrow disbursement order request.
A third method to resolve escrow disputes is for the parties to submit the dispute to arbitration. If the parties agree the arbitration is binding, the decision of the arbitrator is enforced like a judgment. The parties could also agree that the arbitration would be nonbinding, allowing either party to request a trial if that party was unhappy with the arbitrator’s decision. Such a procedure could unduly prolong the dispute.
Any time you give money to someone else it is out of your control. Before proceeding with a contract, you should seek good legal advice as to its terms, including the deposit of escrowed funds. If a dispute arises, good legal representation is critical. I suggest you meet with an experienced attorney to discuss your particular situation before proceeding further.
William G. Morris is an attorney with offices at 247 North Collier Boulevard. His practice covers a broad range of subjects, including civil litigation, real estate, business and corporate law, estate planning and probate, domestic relations and contracts. He writes this column periodically with respect to legal matters that frequently affect non-lawyers. The information contained in this column is not intended as legal advice and, of necessity, is generalized. For questions about specific circumstances, the reader should consult a qualified attorney.