Escrow Disputes

Both residential and commercial real estate transactions usually involve the use of an escrow account. That account holds the earnest money paid by the buyer. If an underlying dispute arises during the purchase of the real estate, a related dispute may also emerge regarding the funds held in escrow. Litigating an escrow dispute in court will involve a considerable investment of time and money without either party having access to the funds until the litigation is resolved. A better way to resolve an escrow dispute is by agreeing to mediate the dispute.

When a buyer and seller enter into a purchase contract for real estate, the seller often marks the property as “contract pending” or even withdraws the listing altogether. To protect the seller, earnest money is typically required to be deposited into an escrow account. The earnest money demonstrates, in a tangible way, the buyer’s good faith intention to follow through with the purchase of the property. Earnest money is effectively a deposit on the property used to hold the property while funding comes through for the full purchase price.

Earnest money must be held in an escrow account, meaning neither party has access to the money until the conditions under which it can be disbursed or refunded are fulfilled. The purchase agreement should discuss when and how funds held in escrow are to be released; however, disputes do arise from time to time. The most common dispute occurs when the underlying purchase contract falls apart and both the buyer and seller believe they are entitled to the funds held in the escrow account.

The amount of money held in escrow can vary dramatically depending on the type of property involved, the status of the market, and the likelihood that financing will come through in a reasonable amount of time. For a residential real estate transaction, however, earnest money will usually be less than five percent of the purchase price. Resolving an escrow dispute using the traditional litigation process, therefore, may mean spending as much in legal fees and expenses as you stand to gain if you win the lawsuit. In addition, it can take months for an escrow dispute to make its way through the judicial system, all the while the disputed funds remain inaccessible.

Mediation offers a less expensive and time-sensitive alternative to a traditional lawsuit. A mediator does not provide advice to either party or rule on the issues in dispute. Instead, the mediator tries to help both parties reach a mutually agreeable settlement that prevents the need for a lawsuit or further litigation. Not only can mediation occur before or after a lawsuit has been filed, but both sides get input into the choice of mediator and share the cost of mediation equally.

If you believe an escrow dispute threatens to turn into full-blown litigation, mediation should be considered as a better way to resolve the dispute quickly and without unnecessary expense. Our experienced escrow dispute mediator has the training and experience to help you successfully resolve your escrow dispute.