Help! How do I get my binder deposit back after a failed real estate purchase?

When two parties enter into a contract for the purchase and sale of real property, the buyer typically provides an initial deposit, commonly referred to as a binder deposit.  Unfortunately, when the contract fails to close (for various reasons), there is oftentimes a dispute over who is entitled to the binder deposit.  On the one hand, the buyer wants the binder deposit returned. On the other hand, the seller wants to keep the binder deposit.  Who wins?

This article will explore the typical scenario surrounding a failed real estate purchase and who gets the binder deposit.  While this article focuses on residential real estate transactions, this scenario is also prevalent in failed commercial real estate transactions.

What is a binder deposit?

 When purchasing residential real property in Florida, the parties will enter into a written purchase and sale agreement.  Common forms of residential purchase and sale agreements include the following:

1. Purchase and Sale Agreement by the Northeast Florida Association of Realtors, Inc. (NEFAR).
2. Residential Contract for Sale and Purchase by the Florida Realtors and the Florida Bar.
3. “As Is” Residential Contract for Sale and Purchase by the Florida Realtors and the Florida Bar.

Regardless of the form agreement that is used, the purchase and sale agreement generally requires the buyer to provide an initial binder deposit.  The binder deposit will vary in amount and is generally held by a title company, often referred to as an escrow agent.  The escrow agent will then hold the deposit until closing on the purchase of the property.

Disputes over the binder deposit

When a real estate transaction fails, it is common for buyers and sellers to dispute who is entitled to the binder deposit.  On the one hand, the buyer typically wants the entire binder deposit to be returned.  On the other hand, the seller typically wants the binder deposit as liquidated damages.  Determining which party will be entitled to the binder deposit will likely depend on why the agreement was cancelled/terminated.  There are many valid reasons for a buyer to cancel a purchase and sale agreement, such as the inability to obtain financing, refusal of the seller to make repairs to the property following an inspection, etc.  If the buyer properly cancels/terminates the purchase and sale agreement, then the buyer is likely entitled to the return of the binder deposit.  However, if the buyer improperly cancels or terminates the purchase and sale agreement, then the seller is likely entitled to the binder deposit as liquidated damages.  The party entitled to the binder deposit will likely depend on the specific facts of each case.

Dispute resolution requirements

Section 16 of the Florida Realtors/Florida Bar Purchase and Sale Agreement (both the standard agreement and the “As Is” agreement), provides that disputes over the binder deposit must be submitted to mediation prior to litigation.  Thus, if the buyer and seller cannot amicably resolve their dispute over the binder deposit, as a condition precedent to litigation over the binder deposit, the buyer and seller must first go to mediation.  This pre-suit mediation requirement allows parties to resolve disputes over the binder deposit without litigation.

On the other hand, the NEFAR Purchase and Sale Agreement does not require mediation or alternative dispute resolution.  Thus, under the NEFAR Purchase and Sale Agreement, the parties may jump straight into litigation.

What is an interpleader action?

 When a dispute arises between the buyer and seller over who is entitled to the binder deposit, the escrow agent will typically file what is known as an “interpleader action.”  Interpleader actions are governed by Rule 1.240 of the Florida Rules of Civil Procedure.  An interpleader action is a lawsuit initiated by the escrow agent.  The escrow agent will name both the buyer and the seller in the lawsuit and will deposit the binder deposit into the court registry.  The buyer and seller will make crossclaims against each other, each explaining why they are entitled to the binder deposit.  Interpleader actions will be discussed in more detail in a subsequent article.

Attorneys’ fees and costs

Whether the buyer or seller will be entitled to recover attorneys’ fees and costs will depend on the form of the purchase and sale agreement.  In the NEFAR Purchase and Sale Agreement, Section 12 provides that the buyer and seller will each be responsible for their own attorneys’ fees and costs.  On the other hand, Section 17 of the Florida Realtors/Florida Bar Purchase and Sale Agreement (both the standard agreement and the “As Is” agreement), provides that in any litigation permitted by the agreement, the prevailing party is entitled to recover its attorneys’ fees and costs.

Whether the buyer and seller are entitled to recover attorneys’ fees and costs is extremely important in disputes over the binder deposit.  When litigation occurs over entitlement to the binder deposit, it is likely that the amount of attorneys’ fees and costs will exceed the amount of the binder deposit.  If the buyer and seller each have to pay their own attorneys’ fees and costs, then litigation over the binder deposit may be cost prohibitive.  On the other hand, if the prevailing party is entitled to recover its attorneys’ fees and costs, then the parties may be more inclined to pursue litigation over the binder deposit.

Conclusion

There are many complexities surrounding failed real estate purchases, including who is entitled to the return of the binder deposit.  Given that there are different purchase and sale agreement forms, the parties need to understand the terms of the executed purchase and sale agreement and evaluate their options. It is important to hire an experienced real estate attorney who can help navigate the waters of these disputes.