Escrow Agents Often Find Themselves Involved in Interpleader Actions
Real estate litigation is unique because unlike most lawsuits that involve a dispute over property or assets between two people or parties, with real estate there is often a third party: an escrow agent, or even a realtor.
What is an Escrow Agent?
An escrow agent is a party that is neutral to, and which has no relation to, either party in the lawsuit. The escrow agent is usually called upon to hold property for and on behalf of both parties.
A typical example in a real estate transaction is an initial deposit on a contract to purchase a home. The deposit is held by the escrow agent because the deposit money could end up being returned, if certain provisions in the contract are not met, or it could end up being paid to the other side, if the contract, and the closing, are completed.
When There is a Dispute
The problem comes when both sides to the contract have a dispute over what happens to the money that is being held in escrow. One side says it’s theirs, the other side says it’s theirs, and the escrow agent has a dilemma: If he returns the money to one side, the other side could sue. If the agent just holds the money, one or both sides will sue.
In the meantime, the agent has no idea which side is legally right, but knows that one of the two parties has to be in the right.
Filing the Interpleader
This is where an interpleader action comes in. An interpleader action is where a party that is holding money or property says to the court that there is a dispute over what is being held, and that the escrow agent doesn’t know what to do with it, and asks the court to decide.
The end result is that the two parties who dispute ownership of the property being held in escrow, end up being taken to court, even if they didn’t want to be.
Proof in Court
The interpleader – that is, the escrow agent or person holding the money or assets—has to show that he or she is subject to liability because of the dispute between the two parties. The interpleader will often turn over the property or money to the court, pending the court’s final judgment of who owns the property.
Because interpleaders are often those with legal duties owed to both sides, such as escrow agents, potential liability for the interpleader for wrongful distribution to one side or the other, is often easy to prove. When and if that is proven, then the court will determine who gets the assets.
The interpleader is not active in the litigation, once the initial burden is proven. Still, the interpleader remains a party to the case, and will likely need legal representation.
Because the risk of an interpleader action carries the risk of legal fees that the interpleader will need to bring the action in the first place, in most situations, anybody who holds money or property in escrow, will have an agreement, that provides attorneys fees to the escrow agent/interpleader, in the event that an interpleader action needs to be brought.
Call the West Palm Beach real estate lawyers at The Law Offices of Larry E. Bray today for help if you have a real estate law problem, in or out of court.