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Escrow Disputes for Realtors

On Behalf of | Nov 14, 2008 | Firm News, Real Estate

Q: At what point do I know whether an “escrow dispute” has arisen between the parties?

A: Essentially, there is an escrow dispute when (1) one of the parties refuses to close and (2) both parties are unwilling to sign a written authorization to the Escrow Agent as to the disbursement of the funds being held in escrow. When it appears that one or both parties will not close, the Escrow Agent (or one of the Realtors) should send a proposed Release and Cancellation of Contract (FAR Form RC-3). The FAR Form is signed by Buyer and Seller and provides for: (1) termination of the Contract; (2) release of the Realtors; and (3) disbursement instructions for the escrowed funds. Without this form or a similar disbursement authorization signed by Buyer and Seller, the Escrow Agent should not be expected to disburse any funds to either party.

Q: As an agent for one of the parties, or transaction broker, what is my role in the event of an escrow dispute? What should I do?

A: Once the escrow dispute has arisen (see above), it could be argued that the role of the Realtor has been concluded, unless due to a provision in the listing agreement or the contract the Realtor has a claim for all or a portion of her commission. Practically speaking, however, even if there is no hope for a commission on this transaction, most diligent Realtor professionals will continue to stay “in the loop” with their clients through the outcome of the escrow dispute. Parties should always be advised to seek the informed counsel of a competent real estate attorney to advise and possibly represent them as to the escrow dispute. After the dispute has arisen, it is the duty of the party or her attorney to deal with the other party and/or the other party’s attorney, and the Escrow Agent. The Realtor should not be expected to assert her client’s position in the dispute, or provide legal advice.

Q: What is the “standard procedure” for handling an escrow dispute? How is it typically processed and resolved? How long does it take?

A: It is really up to the Escrow Agent (or the parties) to move the escrow dispute toward resolution. The Contract for Purchase and Sale will set forth the appropriate procedure. Usually, there is a mediation expectation, followed by some form of binding arbitration or recourse to the local courthouse. For example, in the standard FAR Residential Contract, the parties have 30 days from conflicting demands to mediate the dispute. Failing that, the “Escrow Agent will submit the dispute, if so required by Florida law, to Escrow Agent’s choice of arbitration, a Florida court or the Florida Real Estate Commission.” Note that under the FAR Contract, the Escrow Agent chooses the forum for resolving the dispute. Other forms of contracts (e.g., FAR/BAR, Vacant Land, Commercial) vary slightly in the disposition of an escrow dispute. The relevant section of the contract in question should be referred to in each instance. In general, however, if the parties cannot settle at mediation, it could take months to reach a resolution. Parties should also be aware that the Escrow Agent is entitled to reimbursement for its reasonable attorney’s fees and costs incurred in connection with the escrow dispute. Therefore, there is ample motivation to settle early in order to avoid diminution of the available escrow funds.