YOU COULDN’T CLOSE ON THE FLORIDA PROPERTY, CAN YOU GET YOUR DEPOSIT BACK?
If you’re buying or selling real estate in Florida, the transaction almost always will require an earnest money deposit. This is an arranged amount of cash the buyer puts down to show that their interest is strong while working out the closing details. The money is held in what is known as an escrow account, 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. Therefore, it is important for both buyers and sellers to know their rights and the established rules and regulations regarding such deposits under Florida law.
What is an Escrow Account?
An escrow account is part of nearly every Florida residential real estate transaction. And usually escrow deposits go smoothly. But other times there are problems with a Florida escrow account and it often takes some legal action 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.
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.
Can a Buyer Get Their Deposit Back if There is a Problem Before Closing?
Buyers will customarily have several opportunities to cancel any agreement to purchase property without losing their earnest money. Standard property purchase contracts will have many deadlines laid out for meeting certain milestones in the purchase process. All of these deadlines can be negotiated between the buyer and seller.
At nearly each of these deadlines lies an opportunity for the buyer to cancel the contract without surrendering the earnest money, so long as the buyer submits timely, appropriate notice of the intent to cancel.
One of the most common deadlines where earnest money can be at risk is the inspection contingency deadline. The buyer should negotiate a date far enough out to allow for all desired inspections to be made. If the buyer discovers something about the property during those inspections that he or she cannot live with, the buyer will nearly always have the option to drop out by the deadline. So long as the buyer does so with timely, proper notice, the seller must promptly return the earnest money and move on with marketing the home to other potential buyers.
However, if the deadline has passed and the buyer discovers something else about the house that is objectionable, and terminates the contract, the seller will likely have the option to keep the buyer’s earnest money.
Other common deadlines at which the earnest money is on the line include title review deadlines, deadlines to review all documents relating to the property, and, importantly, a loan contingency deadline. More often than not, it is after the loan contingency deadline when the buyer’s earnest money becomes essentially non-refundable. Because securing a loan can take a long time, the loan contingency deadline is often the final deadline in the contract, and is the last “out” for the buyer. If a buyer decides to not purchase the property after this deadline, it is likely that the seller will have the right to retain the earnest money.
So, What Happens if a Dispute Regarding Closing Occurs After These Deadlines Have Passed?
After these deadlines have past, if the deal falls through, both the seller and the buyer must agree before the earnest money may be distributed 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 will usually say they are entitled to the money. The escrow agent holding the funds is unable to distribute the funds until the dispute has been resolved. In order to resolve the dispute, the parties must refer to the language in the contract. In Florida, the current standard contract used is the 2017 Florida Association of Realtors/Florida Bar As-Is Residential Contract for Sale and Purchase (also known as FAR/BAR). Although many parties use this standard contract, contract terms may be negotiated and amended by the contracting parties. There is no legal requirement that the standard contract must be used or that the language in the standard contract cannot be changed. It is always important to make sure the language in the contract is agreeable prior to signing.
The most recent version of the FAR/BAR contract contains provisions that describe what happens in the event of a buyer or seller default. If the buyer defaults, the seller may choose to recover and retain the deposit as agreed upon liquidated damages, and buyer and seller shall be relieved from all further obligations under the contract. Or, at the seller’s option, he or she may proceed in equity to enforce their rights under the contract.
If for any reason other than the seller’s failure to make his or her title marketable after reasonable diligent effort, the seller fails, neglects or refuses to perform his or her obligations under the contract, the buyer may elect to receive return of the deposit without waiving any action for damages resulting from seller’s breach, and the buyer make seek to recover damages or seek specific performance.
Florida Statute § 475.25 requires that the broker return the funds in 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.
Sweeney Law, P.A. Has Vast Experience in Handling Escrow Deposit Disputes on Behalf of Purchasers and Sellers in Florida
Brendan A. Sweeney, Esq., LL.M., of Sweeney Law, P.A., a boutique firm in Fort Lauderdale, Florida, regularly handles complex litigation that concerns escrow deposit disputes throughout Florida. Brendan A. Sweeney, Esq., LL.M. is an AV Preeminent Martindale Rated Attorney, that has been recognized as a Florida Super Lawyer in 2019, Florida Legal Elite in 2019, and as a Florida Super Lawyer Rising Star in 2018, 2017, 2016, 2015, and 2014. If you have any questions and/or issues regarding escrow deposits contact Sweeney Law, P.A. at (954) 440-3993 immediately to protect your rights.