The truth about Earnest Money Deposits (Escrow)
- Escrow Deposits are held in a Trust Account either with a Title Company, or Attorney
- Title Company/Attorney cannot release Escrow Deposit to either party without a signed cancellation of contract.
- If buyer and seller cannot come to an agreement to release escrow funds, Title Company/Attorney files an Interpleader with the Courts. This will allow a Judge to decide who should be awarded the escrow.
- Judge will review all factual evidence (contracts, contingency removals in writing, letters of declination; basically everything in writing) to determine who should receive disputed escrow funds.
- Once Judge orders the disbursement, Title Company/Attorney fees, court costs and filing fees will be deducted from the refunded escrow amount.
- Judges orders are final.
- By the end of the process, the fees associated with the escrow dispute, can sometimes be more than the original escrowed dollar amount. In this case, the losing party must reimburse the court.
With all of the contingencies defined within the contract, then why are there “Escrow Disputes”?
The #1 reason for an escrow dispute, is because the terms and conditions of the Sales and Purchase Agreement were not met within the contingency time frame. The rule of thumb with contracts is, everything must be in writing. All contingency removals must be in writing with both parties signing the document. If a contingency must be extended, an Addendum to the Sales and Purchase Agreement must be completed with signatures prior to the expiration of the original contingency deadline.
Buyers and Sellers (as well as real estate agents), either get too busy or impatient with the details and will instead, make verbal requests. RESIST TEMPTATION OF VERBAL REQUESTS! Real Estate is 100% of what is in writing, so make sure all due dates are met, all requests are in writing (with all required signatures), and both parties abide by the terms of the Sales Agreement.
Part 1 referenced making a partial escrow deposit. Allow me to explain. Let’s say the Seller is requesting a $5,000 deposit. I would encourage the Buyer (Buyer’s agent) to negotiate paying $2,500 at the time of contract and the other $2500 after all contingencies have been removed. This way, it helps to keep both parties equally engaged in the performance of each step of the contract. Just make sure these terms are included (written) in the signed Sales Agreement.
These are general recommendations. As always, remember to seek the advice of an Attorney. Please note, each sales agreement will have different terms and conditions; but one thing that all contracts have, are performance timelines/deadlines. Make sure you are fully aware of all contingency timelines and make sure all contingencies are removed in writing within the timeline period.