When the phone rang this week and caller ID said New York, I wondered who might be calling.Turns out it was a gal from Long Island who had entered into a contract to have a house built near the (Donald) Trump Towers over near Miami. She explained that they had contracted to have the house built in a pre-construction deal, and put down $100,000 in escrow as the down payment.
Here her story was a little sketchy, but in a nut-shell, here was her question:The contract was entered into and the delay to build the house was supposed to be about a year. Apparently the builder completed the home in time as scheduled.Something happened when the house was finished and ready which caused them not to close.Although she had answers to most of my questions, she did not seem to know why the builder had not returned her deposit.And, obviously, she wanted to know how to go about getting the funds released from the builder’s escrow company.
Perhaps I should tell you that she and her husband did not use a Realtor.They had met with the builder’s representative on site and concluded their negotiations there.So in truth, they have no advocate, and really nobody helping them.The builder had his representative and his lawyer—and maybe his escrow company.The escrow company is normally a law firm.
The Florida Real Estate Commission, and for that matter the licensing bodies in every state have serious regulations when it comes to handling other people’s money.I would say that there are many gray areas in real estate, but when it comes to handling funds, it’s all black and white.You can’t co-mingle funds, meaning mixing together client’s funds with your own; you must account for every penny you have received; and you may be required to even pay a modest amount of interest on money you are holding. (This is an effort to curtail real estate companies from keeping any interest they may earn while they are holding your money.)
So my caller, went on to say that she had repeatedly asked for her money back.The reply she got was that the builder didn’t want to return it, but offered instead to give her credit toward another unit.Her answer: she just didn’t want to buy in Florida anymore.
I asked her if she had ever signed a “Release and Cancellation of Contract”.This is a form that triggers the return of deposit by the escrow company.It’s a simple form that asks both parties to sign off on the release of funds.If the seller won't sign off then the third party holding the escrow has no choice but to continue holding the money until there is a determination, maybe a judgement as to who gets it.
So to get a judgement, you can go to a judge and explain the situation—she was not willing to do that.Too costly to sue a builder in Florida if you live in New York, she said.There is a court expressly for real estate disputes, called Interpleader, but when I discribed that, it was also going to be too onerous for her.
It all sounded so one-sided and seemed so unfair while she was explaining it to me.But then, after we hung up, I began to have my suspicions that all may not be exactly as reported.
Now I think my caller was probably asked to close on the home at about the time the Miami market had pretty well dumped.I suspect they took a hard look at this brand new home they contracted for, and realized that it was now worth maybe hundreds of thousands of dollars less than they agreed to pay.They realized it would be cheaper to walk on the $100,000 deposit, than to buy a house worth maybe half of the contract price.(And if their $100,000 in escrow was 20% down, this would have been a $500,000 house, now worth maybe $245,000).
So I now think my caller waited until the builder had sold the property to another, (so could not force them to buy it) and then decided that since the deposit was still in a third party’s hands, that she might make a claim for it, and might be able to make a case to get it back.
In any case, whether I’m right or wrong, the money in an escrow account stays there safely until all parties agree to release the funds and determine the disbursement (meaning all the funds go to one or the other parties, or is split some way, or goes to a new third party--), and that once disbursed, all parties hold the other harmless from any claims or actions.
So the money is safe, but it may not be hers any longer, that will be up to the judge.