Don’t Leave Deposits In Jeopardy

The purpose of an escrow deposit is more than a sign of good faith. If sufficient, it should keep a buyer from failing to meet contract terms. But the buyer expects that if they uphold the deal they’ll get it back, and the seller expects that if the buyer defaults, there will be a little something for the trouble and time off the market.

But not all “escrow accounts” are the same, and the buyer and/or seller may be disappointed…

In Florida, a Real Estate Sales Escrow Account is governed by the Florida Real Estate Commission (FREC). The account is managed by the broker. Some brokers have been tempted by all that cash, and FREC has imposed fines and worse for misuse of escrow funds or just failing to manage it properly. So a lot of brokers do not want this hassle, and do not maintain an escrow account – instead, they have a friendly title company or attorney handle the funds.

But a title company escrow account is not governed by FREC.

In the event of an escrow dispute (buyer and seller disagree or both claim all or part of the deposit), typically FREC can review the details and issue an Escrow Disbursement Order (EDO). Easy solution, and the funds get to where they should go.

However, FREC doesn’t do this for a title company or attorney escrow account. Instead, the title company must turn to the courts. Without getting into all the legal stuff (I’m not a lawyer and this isn’t legal advice, and please consult your own attorney), a title company has to file an interpleading and I’m told that much of that deposit can get applied to filing fees, attorney fees, and other legal costs involved in resolving the dispute. The buyer and seller get less than the full deposit amount. And it’s possible that during all this, the dispute clouds the property and it can’t be contracted by another buyer.

Our own title affiliate will hold funds if necessary, but they remind us of what could happen if a dispute arises. Sure it’s unexpected, but it’s a risk. That’s one reason Illustrated Properties maintains a real estate escrow account for its customers.

Do your customers a favor, and use a Real Estate Escrow account. If the buyer’s broker doesn’t maintain an account, use the seller’s broker’s account. It’s in everyone’s best interest.