Escrow: Protect the Deposit

What escrow means

Escrow is money or other property held by a neutral party until the contract authorizes its release. In a purchase, the buyer's earnest-money deposit shows serious intent, but the money does not automatically belong to the seller or the brokerage.

The broker is a custodian of the funds. That means the broker must safeguard them, keep accurate records, and disburse them only when properly authorized. A sales associate follows the employing broker's deposit procedures and never decides independently who gets the money.

• Deposit: money or property delivered in connection with a transaction
• Escrow account: a separate account used to hold entrusted funds
• Escrow agent: the party responsible for safeguarding and properly disbursing the funds
• Earnest money: a buyer's good-faith deposit under the contract

The delivery and deposit deadlines

A sales associate who receives a deposit must deliver it to the employing broker no later than the end of the next business day. The associate should follow the broker's instructions immediately rather than wait for the deadline.

A broker must place the funds into the proper escrow account immediately. Under the FREC rule definition, immediately means no later than the end of the third business day following the broker's receipt of the funds.

These are two different clocks. The associate's next-business-day deadline concerns delivery to the employer. The broker's third-business-day deadline concerns placing the money into escrow.

• Sales associate → employing broker: by the end of the next business day
• Broker → escrow account: by the end of the third business day after receipt
• Business days—not calendar days—control these rules

Commingling and conversion

Commingling means mixing entrusted escrow money with the broker's personal or operating money. Conversion is more serious: it means using or controlling someone else's escrow funds without authorization.

Florida permits a broker to maintain a limited amount of personal or brokerage money in an escrow account to cover ordinary bank charges: up to $1,000 in a sales escrow account and up to $5,000 in a property-management escrow account. Staying within those limits for that purpose is not treated as unlawful commingling.

The permitted buffer is not permission to use customer money. Escrow funds must remain available for the people entitled to them.

• Commingling: improper mixing of escrow and personal/business funds
• Conversion: unauthorized use or control of another person's funds
• Sales escrow buffer: up to $1,000 of broker funds
• Property-management escrow buffer: up to $5,000 of broker funds

Worked escrow-account example

A broker's adjusted sales-escrow bank balance is $13,550. The broker's escrow ledger shows $7,500 for Buyer A, $4,250 for Buyer B, and $1,150 for Buyer C.

First total the money owed to the parties: $7,500 + $4,250 + $1,150 = $12,900. Next compare that liability with the bank balance: $13,550 − $12,900 = $650.

The account contains $650 of brokerage funds. Because this is a sales escrow account and $650 is below the $1,000 permitted maximum, the amount can be a lawful bank-charge buffer. There is no shortage because the full $12,900 owed to the buyers is present.

• Total escrow liabilities: $12,900
• Adjusted bank balance: $13,550
• Brokerage funds in account: $650
• $650 ≤ $1,000 sales-escrow limit

When the parties disagree

A good-faith doubt exists when the broker honestly does not know who is entitled to the escrowed property. Conflicting demands occur when the parties make incompatible claims for the same funds.

The broker must notify FREC in writing within 15 business days after receiving the last conflicting demand. The broker must then institute one of the approved settlement procedures within 30 business days after receiving the last demand. The broker keeps the funds protected while the dispute is resolved.

The four procedures are an escrow disbursement order from FREC, arbitration with the parties' consent, a court action such as interpleader, or mediation with written consent. Mediation must be successfully completed within 90 days following the last demand or the broker must promptly use another approved procedure.

• EDO: ask FREC for an escrow disbursement order
• Arbitration: submit the dispute to an arbitrator with consent
• Litigation: seek a court decision, commonly through interpleader
• Mediation: negotiate with a mediator and written consent

Exam traps to avoid

Do not combine the associate's deadline with the broker's deadline. Do not assume the broker may decide a dispute by choosing the party who seems more convincing. Do not confuse a lawful bank-charge buffer with permission to mix operating money into escrow.

Escrow problems are usually solved by identifying who received the funds, when they received them, and whether there is an undisputed authorization or a genuine conflict.

• Identify the recipient: sales associate or broker
• Count business days from that person's receipt
• Separate deposit handling from dispute resolution
• Never release disputed funds based only on one party's demand