FLORIDA REAL ESTATE ESCROW AGENTS
In the State of Florida there are three separate entities that are allowed to hold escrow in the sale and purchase of a real estate. There are only 2 entities permitted to hold escrow in a real estate rental transaction. Many customers commonly question which entity should hold their escrowed funds. The information below should help you decide which entity is the best choice to hold escrow in both the sale and/or rental of real estate.
The buyer/tenant generally selects where they prefer the escrowed funds to be held and this is generally suggested by their Realtor®. However, the seller/landlord may elect to require the escrowed funds to be held by either a specific title company, attorney or real estate broker. Hopefully, one of the brokers involved in the transaction maintains an escrow account. It does not generally matter which broker is holding the escrowed funds if the parties agree that a real estate broker would be best to hold the funds.
In the end - you decide which entity is in your best interest....
Title Company
This is the most common entity used in today's real estate market to hold escrow in a real estate transaction. In fact, it is so common that the many use them to hold escrow in rental transactions. However, in reality this is a violation of Florida law. A title company may only hold escrow in connection with the issuance of title insurance.[1] Obviously, rentals do not require title insurance.
In the majority of cases using a title company as the initial escrow agent in a real estate purchase transaction is never an issue. However, should there be a claimed default by either party to the purchase contract and the title company cannot obtain a mutually acceptable release for the escrowed funds from all of the parties the title company may then file a civil action with the appropriate court of law. The title company is allowed, per the terms of the contract, to deduct from the escrowed funds their attorney's fees and costs. What amount is left over, if anything, is the amount to be litigated. Obviously, the court and attorney's fees could easily exceed the amount of funds in dispute.
Attorney's Trust Account
An attorney may hold escrow in their trust account for both real estate sales and rentals. However, the issues as described above in the event of an escrow dispute are almost identical. In this case the attorney would file a civil action with the appropriate court deducting their fees in advance from the escrowed funds. Once again, both parties may incur substantial expenses in their attempts to obtain these funds if any actually remain.
Real Estate Broker
Many real estate brokers, large and small, refuse to hold escrow for their transactions. They simply do not want the increased liability.
Real estate brokers are governed under FS 475 and FAC 61J2. There are specific requirements mandated in the event the broker does hold escrow and receives conflicting demands of the escrowed funds caused by a dispute between the parties.
A real estate broker must notify the Florida Real Estate Commission (FREC) within 15 days of their receipt of such conflicting demands. FREC then requests that all parties submit in writing the basis for their claim on the escrowed funds. This information may be provided by the parties involved or their attorney. Generally, FREC issues an Escrow Disbursement Order (EDO) to the broker within 3-4 months. This EDO instructs the broker how to disburse the disputed escrowed funds. FREC's decision is generally based on the facts as presented to them via their original request for supporting information and documentation.
Additionally, FS 475 permits the broker holding escrow to release the funds to the buyer, even in the event of conflicting disputes, provided that the buyer is exercising their rights to terminate the contract during the statutorily mandated condominium recession period or in the event of the denial of a mortgage should the contract have an in force financing contingency. Please note that this is not mandated and is only optional to the broker at the broker's discretion. The broker still may seek an EDO to avoid possible civil liability.
The best part of the EDO process is that it is relatively quick and there is not any cost. Attorney's are totally optional. In the end the full value of the escrowed funds are disbursed to the prevailing party.
{1} F.S. 626.8473 Escrow; trust fund. (1) A title insurance agent may engage in business as an escrow agent as to funds received from others to be subsequently disbursed by the title insurance agent in connection with real estate closing transactions involving the issuance of title insurance binders, commitments, policies of title insurance, or guarantees of title, provided that a licensed and appointed title insurance agent complies with the requirements of s. 626.8417, including such requirements added after the initial licensure of the agent.
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