First: What is an escrow deposit? An escrow deposit is a good faith gesture made by the buyer to the seller, indicating the buyer is serious about purchasing the property. Once the funds are deposited, the money should not be removed by the escrow agent holding the funds without the buyer and the seller’s written consent.
Second: How much money should the buyer deposit into the escrow account?In Florida, there is no standard percentage that a buyer must put down for escrow money. Typically, buyers should deposit as little as possible to limit their risk, while sellers should try to require a higher deposit of around 10% of the purchase price to ensure the buyer is serious.
Third: What to do when issues arise after the parties sign the contract.
There are numerous issues that can arise causing a property transaction not to close. Some examples include inspections revealing major undisclosed problems with the property, failure of the property to appraise at the value of the purchase price, unsatisfied liens, or the seller or buyer failing to meet contractual obligations. However, once the deposit has been made into the escrow account, it will stay in there until either the transaction closes, the parties agree to release each other, or a judgment is entered in favor of one party. Accordingly, if issues arise, neither the buyer or seller can simply take the funds out of escrow.
If the deal fails to close, sometimes a dispute will arise over the escrow deposit if both buyer and seller claim a right to the escrowed funds. The escrow agent holding the funds is unable to distribute the funds until the dispute has been resolved. In order to resolve the dispute, the parties must refer to the language in the contract. In Florida, the current standard contract used is the 2017 Florida Association of Realtors/Florida Bar As-Is Residential Contract for Sale and Purchase (FAR/BAR). Although many parties use this standard contract, contract terms may be changed and amended by the contracting parties. There is no legal requirement that the standard contract must be used or that the language in the standard contract cannot be changed. It is always important to make sure the language in the contract is agreeable prior to signing. As such, consider having an attorney review the contract before execution.
The 2017 version of the FAR/BAR contract contains provisions in the event of a buyer or seller default. If the buyer defaults, the seller may elect to recover and retain the deposit as agreed upon liquidated damages, and buyer and seller shall be relieved from all further obligations under the contract. Or, at the seller’s option, he or she may proceed in equity to enforce his or her rights under the contract.
If for any reason other than the seller’s failure to make his or her title marketable after reasonable diligent effort, the seller fails, neglects or refuses to perform his or her obligations under the contract, the buyer may elect to receive return of the deposit without waiving any action for damages resulting from seller’s breach, and the buyer make seek to recover damages or seek specific performance.
Fourth: What happens if the parties cannot agree to a resolution over the escrow funds?
If the parties used the 2017 FAR/BAR contract, the buyer and seller will have 10 days after the date demands are made for the deposit in order to resolve the dispute. If there are still unresolved issues after the 10 days, the buyer and seller must go to mediation, and if mediation does not resolve the issues, an action may be filed in court. Pursuant to the 2017 contract prevailing party in a court action shall be entitled to recover from the non-prevailing party attorney’s fees and costs incurred.
If the parties did not use the 2017 FAR/BAR contract, they must refer to the contract to determine dispute resolution over the escrow deposit.
Disputes over escrow deposits can be complicated and occur more frequently than one would expect. Accordingly, it is very important to seek the advice of a Florida property attorney in the event this situation arises. Contact Van de Bogart Law, P.A. for more information, with offices in Fort Lauderdale, Florida.