If you're buying or selling real estate in Florida, your transaction may require an earnest money deposit, a prescribed amount of cash the buyer puts down to indicate strong interest while working out the closing details. The money is held until closing, and then is applied to the total purchase price, including closing costs. But if the transaction does not reach closing, the earnest money deposit cannot be released without the express consent of both the buyer and the seller. Thus, it is important for both buyers and sellers to know their rights regarding such deposits under Florida law.
Where the Earnest Money Goes
The sales contract will dictate who holds the earnest money. Usually it is the seller's agent who will deposit it in a trust or escrow account until closing. The trust or escrow account is usually managed by an independent third party, such as a title company, but the escrow holder is negotiable between parties. The Florida Administrative Code allows a broker to place escrow funds in an interest-bearing account, but only with written permission of the parties to the sale.
Brokers are required by law to move quickly when they receive a deposit check from a prospective buyer. The broker must deposit the money in an escrow account no later than three business days after receiving it, according to the code.
Tracking the money
Although the Florida Real Estate Commission has no authority to regulate the earnest money held by attorneys and title companies, a rule that went into effect in December 2007 provides a method of tracking the progress of the buyer's deposit when the contract calls for it to be held by an attorney or title agent. Rule 61J2-14.008(b) requires the name and address of the escrow agent to be shown on the contract form. It also requires the selling broker to make a written inquiry to the escrow agent within three business days from the contract acceptance and to notify the listing agent (or seller) that the deposit has been received.
The purpose of the rule is to give the seller prompt information about whether the deposit has been made. According to the Florida Real Estate Commission Web site, myfloridalicense.com, this rule places the burden of confirmation on the selling broker; the listing broker is not obligated to make an inquiry to the escrow agent.
Earnest money disputes
If the deal falls through, both the seller and the buyer must agree before the earnest money may be disbursed to one of the parties. Generally, the would-be buyer is entitled to the money he or she put down. But the seller can keep the deposit if the buyer fails to adhere to the time frames and the terms of the contract.
If there is a dispute, both the seller and buyer may say they are entitled to the money. A title company faced with conflicting demands is likely to maintain the funds in escrow until the buyer and seller resolve their dispute, according to the trade commission, Florida Realtors. However, a seller may continue with the sale of the property to another person even if the escrow is under dispute.
Florida Statute § 475.25 requires that the broker return the escrow at the time that has been agreed upon or is required by law. But if he or she, in good faith, has doubts about what the person is entitled to, or if there are conflicting demands from the buyer and seller, he or she must notify the Florida Real Estate Commission and either: request that the commission issue an order determining who is entitled to the escrow; submit the matter to arbitration (with the consent of all parties); seek judgment from a court; or submit the matter to mediation (with the written consent of all parties.) The mediation process must be completed within 90 days of the last demand.