Last Update: 02/24/16
What is an Earnest Money Deposit?
When a buyer decides to make an offer to buy a house or condo here in Florida, he/she presents to the Seller a signed Purchase and Sale Agreement, which is normally accompanied by a check demonstrating the buyer’s serious intent to purchase the property – that check is called the buyer’s “earnest money” deposit and that money isn’t given to the seller until the transaction is completed and the buyer receives the keys.
What is an Escrow Account?
In a Florida real estate transaction, an escrow account is a separate bank account used to hold earnest money deposits. Real estate brokers and their real estate agents often act as an “escrow agent” by holding the earnest money in good faith in their escrow account. At the closing of the transaction, the earnest money is delivered by the escrow agent to the closing agent and the amount of the deposit is applied towards the purchase price of the real estate.
In fact, anything that a Real Estate Broker receives from a party during a real estate negotiation, even if the brokerage does not have a formal escrow account, must be immediately protected by that broker by placing it into an insured escrow or trust account. This is required by law under Florida Statutes 475.25(1)(k) and Florida Administrative Code Chapter 61J2-14.010.
This means that if a foreign buyer entrusts the broker (or one of its real estate agents, or even the brokerage office’s receptionist) with gold coins, Chinese Yuan, or even a diamond ring, that real estate broker must take that asset and safeguard it in a trust account or escrow account within 3 business days of the brokerage’s taking possession of the item.
What if Things Go Wrong? What Happens With The Earnest Money Deposit?
When a Florida real estate sale goes smoothly, the earnest money moves through the escrow account to the closing table effortlessly and is a real convenience for everyone. However, things don’t always go smoothly, do they?
Sometimes, the buyer and the seller do not agree on what should be done with the earnest money. Buyers may want that money returned to them because the seller breached the contract by not closing on time or failing to clear title issues, for instance.
Also, there are times when the seller wants to keep the deposit because of something the buyer has failed to do – for example, the buyer is unwilling or unable to close because his/her financing has fallen through or the property appraises for less than the purchase price.
In those situations where there is a dispute over the deposit, the real estate broker holding the earnest money deposit will either, depending on the terms of the contract, seek mediation of the dispute or they file a formal notice with the Florida Real Estate Commission of the escrow dispute pursuant to Florida Administrative Code Section 61J2-10.032(1)(a).
What if Earnest Money Goes Missing From the Real Estate Broker’s Escrow Account?
Unfortunately, escrow agents have been known to wrongfully use the earnest money deposits they have been entrusted with, resulting in legal claims for things like breach of duty, civil theft and, in some instances, criminal theft.
The temptation to unlawfully use earnest money by escrow agents cannot be underestimated; it is something that has happened so often, that the State of Florida has regulators on the payroll to periodically check and audit escrow accounts of real estate brokerages to make sure everything is being handled properly.
The Florida Department of Business and Professional Regulation has been empowered by the Florida Legislature under Florida Statute 475.5017 to go before a Florida Circuit Court Judge and request an immediate Injunction to freeze the escrow account if the Florida Regulator suspects anything bad is happening.
After that, a court proceeding can be held where the broker’s financial records can be reviewed by a receiver and if the court finds wrongdoing has taken place, the judge can issue the appropriate orders to thwart any harm to you or the public as a whole.
Claims for Escrow Account Misappropriation or Lost Earnest Money Damages
If you believe that you have a legal claim to an earnest money deposit for breach of contract or you have a claim for wrongdoing involving an escrow account in a Florida residential real estate transaction, then you may need legal advice on how best to right that wrong.
An experienced Florida real estate lawyer can evaluate the situation and work with you on how best to resolve the problem. There may be times when the solution is as simple as involving the Florida Real Estate Commission to obtain an “escrow disbursement order.”
There may be occasions when more stringent methods — like filing a formal claim or even a lawsuit for breach of duty — is warranted.
A good piece of advice is to at least speak with an experienced Florida real estate lawyer to learn about your rights. Most real estate lawyers, like Larry Tolchinsky, offer a free initial consultation (over the phone or in person, whichever you prefer) to answer your questions.
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