What happens to the money when the real estate deal falls apart?

Get The Legal Help You Need

By Gary M. Landau, Esq.

Call (954) 979-6566 Today
Probate & Real Estate Lawyer | Florida | Call (954) 979-6566

This article is adapted from a speech given at a recent seminar at the Coral Springs Bar Association.

Sooner or later every real estate practitioner’s nightmare scenario comes true: The deal falls apart, but both the buyer and seller believe that the other side is in breach of contract. Each feels entitled to the deposit money being held by the escrow agent.

As recently as a decade ago, it was typically the real estate broker holding the deposit. If the purchase and sale contract allowed for it, he or she would file paperwork with the Florida Real Estate Commission (FREC) for what’s called an “escrow disbursement order.” Eventually, FREC would issue their decision. Over the years, though, brokers have increasingly preferred not to hold the escrow monies; today, most money is held by the closing attorney or Title Company; the result is that the mechanism for resolving this problem has become more complex.

Due to the fees and time involved, attorneys or title companies facing these failed deals first urge the parties to try to resolve the problem themselves. For example, perhaps the Realtor or closing agent can help one party realize that he is not entitled to the money under the terms of the contract (e.g., maybe the buyer filed for financing or condo approval after the allowed contract date, or the seller did not disclose material defects about the property).

If they cannot come to terms, another good option is mediation, where a trained mediator (who is a neutral 3rd party) works with each side to reach a voluntary agreement. (Some contracts actually require mediation as a first step towards resolving the dispute.)

If these steps are unsuccessful, the escrow agent then files an action with the state court (or an arbitrator, if the contract allows it). This filing is known as an “interpleader,” a term that stems from Rule 1.240 of the Florida Rules of Civil Procedure.

In an interpleader, the escrow agent in effect sues both the buyer and the seller. After the attorney files the complaint with the court, the buyer and seller have the opportunity to respond to the complaint, and to file “cross-claims” against each other for breach of contract (often hiring their own attorneys to represent them). During the process, the attorney/escrow agent seeks the court’s permission to deposit the money with the court. At some point (typically months or years later; sometimes following an actual trial), the judge decides who gets the remaining money and allows it to be disbursed from the court escrow.

Keep in mind that the attorney filing the interpleader will charge fees for their out-of-pocket filing costs, as well as for their time. Some contracts allow the filing attorney to deduct his/her court costs before depositing the money, so the amount put into the court by the escrow agent may be less than the buyer’s original deposit.

The three contacts typically used in South Florida have slightly different provisions regarding escrow disputes, which are worth noting:

The Ft. Lauderdale Board of Realtors contract states that “any controversy may be submitted to mediation prior to arbitration or litigation,” with the mediator/arbitrator’s fee paid equally by the parties. The difference between mediation and arbitration is that in the former the agreement is voluntarily reached by the parties, whereas in arbitration, the parties give a chosen arbitrator the power to make a binding decision.

The Far/Bar contract does not offer the option of arbitration but requires an attempt at mediation if the parties can’t agree among themselves after 10 days. The expense of the mediator is split between the parties.

The Florida Association of Realtors (FAR) contract gives the parties 30 days to meditate, after which they can go to arbitration or court.

Regardless of the specifics of the contract, it’s always best to avoid court if at all possible. Sometimes, just educating the parties about the hassle, time, and expenses that will be involved is enough to get them to accept a reasonable agreement. After all, everyone benefits if the parties can quickly put the failed deal behind them and move on to one that is ultimately successful.

0/5 (0 Reviews)

Frequently Asked Questions

A will is the simplest way to ensure that your funds, property and personal things will be distributed after your death the way you want them to. Even if you have very few assets, you will benefit from having a will. About half of all Americans die without a will (known in legal terminology as dying intestate). Without a will to indicate your wishes, the court steps in and distributes your property according to state law. A will ensures that your assets will be given to family members or other beneficiaries you designate.

 

Having a will is doubly important if you have young children. One section of the will allows you to designate a guardian for them in the event of your death. Without a will, the court will appoint a guardian for your children, who may not be the person you desire.

Many Florida residents have out-of-state wills, drawn up while they were still living among the hills of North Carolina or the hubbub of New York. If the will was valid according to your old state’s laws at the time you made it, it is still legal in Florida. However, if you are a Florida resident, you may benefit greatly by having a new will drawn up in Florida, because it will likely be more easily admitted to probate.

 

It is important to know that each state has its own requirements for what makes a will a legally binding document. For example, Florida doesn’t recognize handwritten wills that haven’t been witnessed (known as “holographic wills”), or oral wills not put into writing, even if other states okay them. There’s also the matter of Florida estate law. In this state, for example, your surviving spouse is entitled to 30 percent of your net probate estate, regardless of what you say in your will. The spouse may also have a “Homestead” interest in property you share here, even if you want your house to go to someone else. In fact, all real property owned in Florida will be subject to this state’s laws, even if you’re a snowbird maintaining a residence in the state where your will was drawn up. Other peculiarities also exist, which is why a Florida will could make things much easier for your heirs.

 

If you would like to have me review your current out-of-state will, I am happy to do so without charge. If it turns out to be in accordance with Florida state laws and procedures, you can continue to rely on it. If not, however, your heirs would rather you discover that now.

It is a good idea to re-read your will every few years to be sure it reflects up-to-date realities (you may not want to leave your heirloom to a niece you are no longer speaking to, nor have someone be named your child’s guardian if they have taken seriously ill since you drafted your will). It is especially important to reexamine your will if:

 

  • You have gotten married since it was last drafted;
  • You have made bequests to people who have fallen out of your favor or are no longer living (I recently updated the will of a man who had left everything to his first wife, who was long deceased), or you have not included people who are now dear to you;
  • You would like to change the person named as the personal representative of the estate. (Note: Florida law does not allow a nonresident of the state to serve in this position, unless it is an immediate family member or certain other relatives);
  • You have acquired pricey or sentimental items that are not accounted for in your will. Do note, though, that Florida law allows you to attach a separate personal property memorandum to your will, detailing who will get which specific items. This list can be changed whenever you want.

Perhaps I should answer this question with where not to store it: in a bank’s safety deposit box. Although it may seem logical to put this with your other important papers, it is often difficult for your heirs to gain access to the box once you die, since the box is sealed then and must be opened in the presence of a bank employee.

 

One good option is to leave your original will with the attorney who drafted it, making copies for your personal representative and other important relatives and letting them know who has the original. For my clients who prefer that I store their original will, I keep it in a fireproof will vault in my office, or in the vault in my bank.

 

As an alternative, you could store the will in a fireproof box or vault in your own home.

 

Wherever you store it, be sure to let your personal representative and other close relatives know where you have put it!

Probate is when the court oversees your assets and liabilities after your death. During probate, the court makes sure that your will is valid and acceptable; that all debts, bills, creditor’s claims, and taxes are paid from your estate’s assets; and that your remaining assets are distributed to your beneficiaries according to your will (or, if no will exists, by Florida law).

 

Probate usually does take longer than most beneficiaries would like. But in order to ensure that everyone with a right to a claim is included in the process, the court requires several steps. If the size and complexity of your estate are minimal, however, the entire process of probate can take as little as a few months. Larger estates that are subject to IRS estate taxes or those involving litigation on the part of creditors or heirs generally take longer, often one or more years.

 

To speed the process along for simple and small estates, the courts allow a shortened form of probate, known as “summary administration,” which requires much less paperwork and time.

A personal representative (PR) is a friend or relative, or an attorney or bank, who is put in charge of the estate until all matters regarding the probate are resolved. (In other states, this person is sometimes called an executor or administrator.) The job of the PR includes identifying all assets, searching for creditors and paying valid claims, filing required estate tax returns if the estate is large enough (the figure escalates over time, according to Congressional laws), coordinating with the probate court and attorneys, and overseeing the distribution of assets–all done under the guidance and assistance of a qualified attorney.

 

Serving as a PR is an important role, and such a person should be selected with care as to who is most willing and best able to serve in this position. By Florida law, your personal representative must be over 18 years of age, and be a blood relative, your spouse, the parent or child of your spouse, or a Florida resident.

Generally, no. If you co-own all property via such legal structures as “tenancy by the entirety” or by “joint tenancy with right of survivorship” the property immediately passed to you upon your spouse’s death. Proof of death is usually all that is needed to pass such jointly owned title for cars, stocks, and other personal property to the surviving spouse.

 

But if even one asset was held solely in the deceased person’s name, or any property is owned in the form of a “tenancy in common,” that estate will be required to go through probate. If the assets are limited, the shorter, simpler form of probate is generally all that is required.
Scroll to Top