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What is an “interpleader action” after a failed real estate purchase?
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What is an “interpleader action” after a failed real estate purchase?

June 14, 2023 Real Estate Development, Sales and Leasing Industry Legal Blog

Reading Time: 5 minutes


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.  If the buyer and seller cannot agree on who should receive the binder deposit, then what happens?

In a prior article, I analyzed and discussed this typical scenario between the buyer and seller and the options that they each have relating to the binder deposit.  This article will generally explain what an escrow agent will do when there is a dispute over the binder deposit and what it means to file an interpleader action.

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 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 provides for 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.

If the buyer refuses to move forward with the purchase of the property, there may be a dispute over who is entitled to the binder deposit.  In that situation, if the parties cannot resolve the dispute themselves, the escrow agent may have to file an interpleader action and have a court determine who is entitled to the funds.

What is an interpleader action and how does it work?

When a dispute arises between the buyer and seller over who is entitled to the binder deposit, the escrow agent has a couple options.  The escrow agent may hold the binder deposit and allow the buyer and seller time to amicably decide who is entitled to the binder deposit.  If the buyer and seller cannot amicably resolve their dispute, then 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.  In the NEFAR Purchase and Sale Agreement, interpleader actions are referenced in Section 12 and afford specific rights to the escrow agent.  In the Florida Realtors/Florida Bar Purchase and Sale Agreement (both the standard agreement and the “As Is” agreement), interpleader actions are referenced in Section 13 and afford specific rights to the escrow agent.

Simply stated, the escrow agent may file a lawsuit asking the court to allow the holder of the binder deposit to deposit the money into the court registry.  The holder of the binder deposit will name both the buyer and the seller in that lawsuit and then will ask the court to allow the escrow agent to get out of the lawsuit.  Provided the escrow agent does not have any other liability to the buyer or seller, the Court generally allows the escrow agent out of the lawsuit.

The buyer and seller will remain in the lawsuit and generally make crossclaims against each other, each explaining why they are entitled to the binder deposit.  From that point, the buyer and seller will litigate the issue of who is entitled to the binder deposit.  The buyer and seller may each have grounds for why they believe they are entitled to the binder deposit.

Recovery of the escrow agent’s attorneys’ fees and costs

Since the escrow agent is generally an uninterested third party to a binder deposit dispute, the purchase and sale agreement usually allows the escrow agent to recover its attorneys’ fees and costs relating to the interpleader action.  The escrow agent’s attorneys’ fees and costs are typically deduced from the binder deposit and the remainder of the binder deposit will be placed into the court’s registry.

In the NEFAR Purchase and Sale Agreement, Section 12 permits the escrow agent to recover its attorneys’ fees and costs from the binder deposit.  In the Florida Realtors/Florida Bar Purchase and Sale Agreement (both the standard agreement and the “As Is” agreement), Section 13 permits the escrow agent to recover its attorneys’ fees and costs from the binder deposit.

Conclusion

There are many complexities surrounding failed real estate purchases.  While those complexities are generally seen between the buyer and the seller, it is important for escrow agents to understand their rights and responsibilities and obtain guidance and counsel on how best to handle binder deposit disputes and interpleader actions.

Read more about binder deposits here: Help! How do I get my binder deposit back after a failed real estate purchase?

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