Last Update: 2/18/18
When you are buying a home here in South Florida, or you are trying to sell a house or condo somewhere in the Miami – Palm Beach – Fort Lauderdale area, there are certain steps that are automatic in every residential transaction. The buyer makes an offer and the seller either counters or accepts. A purchase agreement gets signed. A deposit is given to an escrow agent, and a mortgage is sought.
An Escrow account, is part of nearly every Florida residential real estate transaction. And like most things, escrow deposits go smoothly … until they don’t. And when there are problems with a Florida escrow account, it often takes a Florida real estate lawyer to help fix things and either get the deal closed or help the buyer (or seller) walk away from a bad deal without getting harmed in the process.
What is an Escrow Account?
An escrow account is a bridge of sorts between the buyer and seller whenever a Florida home or condo is being bought and sold. It is an account where the good faith money that is being offered by the buyer to seller is held. The “escrow agent” oversees the account, and is responsible not only for the money itself but also the documentation that relates to the money.
Funding Escrow in a Residential Real Estate Transaction: Earnest Money
When someone is purchasing a Florida home or condo, they begin by providing a sum of money that is defined in the purchase agreement as the “earnest money” deposit. The earnest money is given by the buyer as evidence that the buyer is serious about buying the real estate; earnest money allows the seller to remove that property from the open marketplace (and from the possibility of other buyers making offers – although some contracts allow for back-up offers) because the buyer is serious about purchasing the house.
The buyer doesn’t hand over the earnest money to the seller. The buyer hands over the earnest money to the escrow agent who puts it into an escrow account.
In some instances, buyers will put up to 10% of the asking price of the home as a deposit towards the purchase. It is this earnest money – a sum that demonstrates to the seller that the buyer is “earnest” or in good faith about wanting to buy the property – that goes into the hands and control of the escrow agent until the closing is completed and ownership of the real estate transfers from the seller to the buyer.
Other Money That Go Into the Escrow Account
The buyer’s initial earnest money isn’t the only money that can gets deposited into the escrow account. Other money that may be held in escrow include:
- The buyer’s additional deposits;
- Tenant deposits;
- Contributions made by third parties;
Can The Buyer Get Back Their Escrow Money?
Once the escrow account has the earnest money deposit, it stays there until closing. The buyer just can’t say “I want my money back!” and get it back. However, there are times when the escrow agent must return the earnest money to the buyer; these instances include:
1. An Inspection reveals problems with the property and a contingency clause in the purchase contract allows the buyer to get their deposit back and walk away; or
2. The Appraisal comes back lower than the purchase price and again, there is a clause in the purchase agreement that allows the buyer a refund of their earnest money and the choice to walk away (if they don’t want to renegotiate for a lower price).
Problems With Escrow Caused By Real Estate Agents and Brokers
Often, real estate professionals (agents, brokers) act as escrow agents in Florida residential real estate sales. One of the most common problems with escrow accounts in Florida is a discrepancy that occurs between the money entrusted to the real estate agent and the money that actually goes into their real estate broker’s account. More common problems caused by real estate agents or brokers holding deposits, include situations where:
1. The agent doesn’t make sure that the buyer’s money is actually in the escrow account, then the deal goes south (i.e. the buyer has breached the contract), the seller not only losses the sale of the home or condo, but also losses the earnest money deposit that was supposed to help make the seller whole in this very situation. Here, the seller may have not only a breach of contract claim against the buyer but also a complaint about the broker with the licensing board (as well as a legal claim against the broker).
2. Even if the real estate agent and the real estate broker are careful to get the buyer’s deposit check, if the escrow account cannot be fully reconciled down to the penny, then there’s a problem. Escrow accounts should start with the sum of zero, before anything is deposited in it, and it should end with zero, after all the money has been distributed at the closing table. (Real estate brokers in Florida are required by law to check on escrow accounts every month to make sure that everything is okay. See, Florida Administrative Code rule 61J2-14.012.) If the money in the account doesn’t balance at the closing table, then there may be a claim against the escrow agent / real estate broker.
3. Lots of real estate lawyers receive calls about this scenario — The escrow agent willfully breaches the contract or is grossly negligent for misdelivering the deposit to the buyer or the seller when there is a dispute i.e. there are conflicting demands for the deposit because the transaction has or is falling apart.
Are You Having a Problem with a Deposit Being Held By a Real Estate Broker or Other Escrow Agent?
If you are in the process of buying a home or condo here in South Florida, or if you are a seller who is concerned that the sale of your residential real estate is about to fall apart, then getting the guidance of a Florida real estate lawyer can be invaluable to you. Florida attorneys with experience in residential closings should know how to resolve most disputes quickly and without the buyer or the seller enduring any unnecessary stress. (They can also help with mediation, which most real estate contracts require when there is an escrow money dispute.)
A good piece of advice if you are having a problem with an earnest money deposit, is to 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.
- What Happens When a Seller Defaults on a Residential Sales Contract in Florida?
- What Happens When a Buyer Defaults on a Florida Real Estate Contract?
- 19 Reasons To Hire a Real Estate Lawyer When Buying or Selling Florida Real Estate
If you found this information helpful, please share this article and bookmark it for your future reference.