As with all transactions, some go smoothly, and some are a nightmare. When the inspection contingency has expired, and buyers try to cancel deals, sellers are unhappy to say the least. So, what can they do? Typically, the escrow deposits are the one thing of value remaining that sellers can go after to make themselves whole. Buyers, of course, often have a different viewpoint on who is entitled to the escrow deposit and correspondingly seek the return of the funds even if the request is unsupported by the terms and conditions of the contract. In situations where both sides disagree as to the disbursement of the escrow deposit, you have officially entered the realm of the infamous escrow dispute!
If the escrow agent is a title company or lawyer, which is typically the most common scenario, the Dispute Resolution paragraph of the FAR-BAR AS-IS Residential Contract for Sale and Purchase gives ten (10) days for the buyer and seller to attempt to resolve the dispute on their own. If the parties can’t agree within that timeframe, they must submit the dispute to mediation. If the two sides still can’t agree on how to divide the escrow deposit or come to some other form of resolution, the escrow agent may then file an interpleader action where the parties litigate as to entitlement.
Once the escrow agent files the interpleader action and deposits the escrowed funds into the court registry, the court will take the escrow agent’s attorney’s fees and court costs directly from the deposit, thereby reducing the amount of the escrow funds ultimately available to the prevailing party. So, regardless of who prevails, the pie will undoubtedly be smaller at the end of the journey than when the dispute began.
When I get calls to represent buyers or sellers related to a disputed escrow, it typically involves an amount under $5,000.00. They often tell me that it is a matter of principle and that they don’t care how long it takes to resolve the issue. After taking the retainer and litigating the matter for a few months, clients often get litigation fatigue, and more importantly, litigation remorse. The reality of litigation, regardless of the dispute, is that there is a lot of uncertainty. It takes time to get to the final ruling, especially when there are attorneys on both sides. Some of these more heavily contested cases related to escrow deposits of $5,000.00 or under ultimately end up being more about prevailing party attorney’s fees than getting an adjudication of the initial matter of principle. Before you hire an attorney out of anger, take a deep breath and make sure that the juice is worth the squeeze. Don’t allow a nominal amount of money to push you into months and months of anxiety and frustration. Some disputes are worth litigating, and some aren’t. If you are on the fence regarding whether or not you want to fight the good fight, sometimes the best and quickest resolution is to just agree to split the deposit down the middle and for both sides to move on with their lives.
For more complex disputes involving significant sums of money, sometimes litigation is the only option. If you are on a one-way path to an interpleader action, make sure to hire an attorney that is familiar with disputed real estate transactions. After all, the choice of attorney may be the most important decision that you can possibly make.