Escrow fights can drain deposits before buyers or sellers get paid

When a real estate transaction falls apart in Northeast Florida, the earnest money deposit can become a battleground—and the cost of settling that fight in court may leave both buyer and seller with far less than they're expecting. A new advisory from Florida Realtors warns that legal fees incurred when escrow holders turn disputes over to the courts can seriously deplete deposits, sometimes consuming the majority of smaller escrow amounts before anyone receives a payout.

The notice, published September 29 by Florida Realtors Associate General Counsel Richard Swank, explains that when buyers and sellers can't agree on who gets the earnest money after a failed deal, the entity holding the deposit—a real estate broker, title company, or attorney—may file what's called an interpleader action, asking a civil court to take over. That process comes with attorney's fees and court costs that are typically reimbursed from the disputed deposit itself.

What's happening

When a real estate transaction fails, the party holding the buyer's earnest money deposit must ultimately release those funds. However, buyers and sellers often issue conflicting demands, leaving the escrow holder unable to determine a mutually agreed release method. Real estate brokers in Florida may request an Escrow Disbursement Order from the Florida Real Estate Commission, but that remedy is generally not available to non-broker escrow holders such as title companies or attorneys.

In these cases, the escrow holder may file an interpleader action under Florida Rule of Civil Procedure 1. 240. An interpleader is a lawsuit in which the escrow holder deposits the disputed funds with the court and is then dismissed from the case, forcing the buyer and seller to litigate their claims before a judge who decides who is entitled to the deposit.

The built-in disadvantage: the escrow holder incurs attorney's fees and costs to file the suit. To recoup those expenses, the escrow holder's attorney typically files a claim with the court for reimbursement, and courts often grant such requests. Paragraph 13 of the FR/Bar and ASIS contracts, and paragraph 17 of the CRSP contract—the standard real estate purchase agreements used across Florida—explicitly entitle closing agents or escrow agents to recover reasonable costs and attorney's fees if they resort to interpleader due to doubt about disbursement.

Because the escrowed funds are the only reliable source of money before the court, judges generally use the deposit itself to reimburse the escrow agent. If the deposit is only a few thousand dollars, it would not be unusual for the majority to be consumed by the reimbursement of the escrow agent's expenses, leaving little for the disputing parties.

Impact on Northeast Florida home buyers and sellers

For buyers and sellers navigating Jacksonville's active real estate market, the potential for deposit erosion adds a new layer of risk to transactions that go sideways. Earnest money deposits in the region typically range from one to three percent of the purchase price. On a $350,000 home—close to the median sale price in many Duval and St. Johns County neighborhoods—a two-percent deposit equals $7,000. If an interpleader action and associated legal fees consume half or more of that amount, the winner of the dispute may net only a few thousand dollars after months of litigation.

The erosion is especially acute for lower-priced transactions common in parts of Duval County's urban core and in Clay and Nassau counties, where starter homes and investment properties often trade below $250,000. A $3,000 to $5,000 deposit on such properties could be nearly wiped out by legal costs, leaving both parties with little incentive to pursue formal resolution and potentially more reason to settle informally—or to walk away bitter and empty-handed.

Buyers who believe they are entitled to a refund due to inspection issues, financing contingencies, or seller contract breaches may find that winning in court is a Pyrrhic victory. Sellers who argue the buyer failed to perform may face the same outcome. The warning underscores the importance of understanding contingencies and deadlines spelled out in the standard Florida contracts, which are widely used by Realtors and attorneys throughout Northeast Florida.

What real estate professionals and consumers should know

All three standard Florida contracts—FR/Bar, ASIS, and CRSP—obligate buyers and sellers to attempt informal resolution of disputes before resorting to litigation. Real estate professionals in the Jacksonville area emphasize that mediation, direct negotiation, or even a compromise split of the deposit can save both time and money compared to an interpleader action.

Agents and brokers acting as escrow holders have additional options. Florida-licensed real estate brokers can request an Escrow Disbursement Order from the Florida Real Estate Commission, an administrative remedy that allows FREC to issue a binding decision on deposit disputes without the expense of court litigation. However, this avenue is available only to brokers, not to title companies or attorneys holding escrow.

For transactions handled by title companies or real estate attorneys—common in Northeast Florida, where many buyers and sellers opt for attorney-led closings—interpleader may be the only formal recourse if the parties cannot agree. Title companies and attorneys are bound by fiduciary duties and cannot unilaterally release disputed funds without risk of liability, making interpleader a protective measure when positions harden.

The advisory notes that escrow holders do not claim the deposit for themselves; they are merely stakeholders. The interpleader mechanism allows them to exit the dispute cleanly by turning the funds over to the court, but it does so at a cost borne by the deposit itself.

Why disputes arise in Northeast Florida transactions

Real estate transactions can unravel for countless reasons, and Northeast Florida's fast-moving market over the past several years has created conditions ripe for disagreement. Appraisal gaps, where a home's appraised value falls short of the contract price, have been a frequent sticking point, particularly in hot markets like Nocatee, Ponte Vedra, and the Riverside-Avondale neighborhoods of Jacksonville, where multiple offers and escalation clauses have driven prices.

Inspection disputes are another common trigger. Older homes in established Jacksonville neighborhoods such as San Marco, Springfield, and Mandarin may reveal structural, electrical, or plumbing issues that prompt buyers to request repairs or price reductions. If sellers refuse and buyers attempt to terminate the contract, the question of whether the buyer properly exercised a contingency—or whether the contingency period had already expired—can become the crux of an escrow fight.

Financing contingencies, too, are a frequent flashpoint. A buyer who cannot secure a loan may be entitled to a refund if the contract included a financing contingency and proper notice was given within deadlines. Sellers, however, may argue the buyer did not act in good faith or missed a deadline, entitling the seller to keep the deposit as liquidated damages. The interpretation of contract language and timeline compliance often divides the parties.

In new-construction transactions—prevalent in Clay County's growing Green Cove Springs and Middleburg corridors, and in St. Johns County's SilverLeaf and Shearwater communities—builder contract terms and delivery delays can lead to cancellations and deposit disputes, particularly if economic conditions shift or buyers' circumstances change during lengthy build timelines.

What happens next

The advisory does not announce a change in law or procedure; interpleader actions and fee reimbursement from escrow funds have long been established under Florida civil procedure. Rather, the September 29 notice serves as a reminder to real estate professionals and consumers of the financial reality that accompanies formal dispute resolution.

For buyers and sellers entering contracts in Duval, St. Johns, Clay, Nassau, and the broader First Coast region, the takeaway is straightforward: understand your contract deadlines, document your communications, and if a deal falls apart, make a serious attempt to negotiate the deposit's return or forfeiture before positions harden. Agents and attorneys can facilitate those conversations.

If an escrow holder does file an interpleader action, the dispute moves to the local circuit court with jurisdiction over the property. In Duval County, that means the Fourth Judicial Circuit; in St. Johns and Clay counties, the Seventh Judicial Circuit. The timeline for resolution will depend on court dockets and whether the parties continue to contest the matter or reach a settlement once the stakes—and costs—become clear.

The phenomenon underscores a broader reality in Northeast Florida's real estate market: as transaction volume remains elevated and price appreciation continues—albeit at a slower pace than the pandemic-era surge—the absolute dollar amounts at stake in escrow disputes are rising, but so too are the costs of resolving them. In a region where affordability and transaction costs are already pressing concerns for first-time buyers and move-up purchasers alike, the potential for legal fees to consume earnest money is one more reason to get the details right the first time.