Topic 5.4: Notice and Settlement Procedures >

Learning Objectives

After successfully completing this topic, you will be able to list the four settlement procedures available to a broker in case of conflicting demands for escrowed funds.

Legal Control of Escrowed Funds

When a prospective buyer makes an offer for property and gives a broker a good-faith deposit, the buyer has legal control of the funds. This means that until the offer is accepted the buyer may demand the return of the deposit. Once the offer is accepted, it becomes a contract, and the funds are under the legal control of all parties. The broker may not pay the funds to either party without the consent of all parties. Sales associates must inform the broker immediately if there are conflicting demands for escrowed funds. The FREC has strict rules if the parties disagree on the disposition of the funds (“conflicting demands”).

Good-Faith Doubt

Sometimes a broker may have good-faith doubt about which party is entitled to the escrowed funds. A broker may have good-faith doubt if

  1. the closing date for a transaction has passed and the parties have not agreed on whom the broker should pay, or
  2. before the transaction closing date, one of the parties has told the broker he or she does not intend to close. The parties have not agreed on whom the broker should pay, or
  3. a transaction fails to close and one of the parties to the transaction does not respond to the broker’s questions about disbursing the escrowed funds. the broker may send the party a certified letter stating that a demand has been made for the funds, and that unless the party responds within a specific period, the failure to respond will be treated as permission for the broker to disburse the funds to the other party. Ideally, the broker will have a return receipt for the certified letter before disbursement.

Conflicting Demands

In situations where a broker has good-faith doubt, or when the parties to a transaction have made conflicting demands on the escrowed funds, the broker must follow prescribed FREC settlement procedures. Within 15 business days, the broker must give written notice to the FREC.

Additionally, the broker must do one of the four available settlement procedures within 30 business days from the time the broker received conflicting demands. A broker who does not meet these time limits may be charged with failure to account and deliver escrowed funds, a serious violation.

Example of Conflicting Demands
Broker Susan has received a $5,000 good-faith deposit for the sale and purchase of a house. The buyer and the seller have a disagreement about the condition of the property, so the buyer cancels the contract and requests that the broker return the deposit. The seller later calls the broker to demand the funds. The broker feels that the situation can be worked out, but after six business days gives up and notifies the FREC about the conflicting demands.  
Because the broker must do one of the four available settlement procedures within 30 business days from the time of conflicting demands, the broker now has only 24 business days remaining.

If a Title Company Holds the Deposit

If a title company is the escrow agent, the broker does not have to report an escrow dispute to the FREC, nor request one of the four settlement procedures. If the parties cannot agree on who should receive the funds, the title company will say, in effect, “Get a court judgement that tells us who should get the funds.”

Settlement Procedures

The FREC settlement procedures are mediation, escrow disbursement order, arbitration and litigation (MEAL).


The broker may submit the matter for mediation. All parties must agree to the mediation and must agree on who will pay the mediator. Mediation is not binding on the parties, but may help the parties find a path to an agreement. If the parties don’t reach an agreement within 90 days, the broker must choose another procedure promptly.

Escrow Disbursement Order (EDO)

The broker may request that the FREC decide who is entitled to the funds. The broker must notify the FREC within ten days if the dispute is settled or if the issue goes to court before the EDO is issued. If the FREC notifies the broker that it will not issue a disbursement order, the broker must then tell the FREC which one of the other settlement procedures the broker intends to use.


If all parties agree, the matter may be settled in an arbitration proceeding. The results of the arbitration are legally binding on all parties. The parties must also agree who will pay the arbitrator.


The broker may decide to let the court system sort it all out. If the broker does not claim any of the funds, the broker will file an interpleader. If the broker claims part of the funds, the broker would request a declaratory judgment.

Exceptions to the Conflicting Demands Requirements

There are three exceptions to the conflicting demands requirements
• A buyer of a resale residential condominium has a three-day “cooling-off” period after receiving the condominium documents, and a buyer of a new condominium has 15 days. The cooling-off period allows the buyer to cancel the contract and receive a refund of the deposit. The broker may return the buyer’s deposit without notifying the FREC.
• If the contract is contingent on financing, and the buyer cannot obtain financing, the broker may return the deposit to the buyer without notifying the FREC.
• If a buyer enters a HUD contract and demands the deposit back, the broker must follow HUD’s Agreement to Abide.

Conflicting Demands Between Landlord and Tenant

Another exception to the conflicting demands requirements concerns property managers. In this case, the Florida Landlord and Tenant Act trumps the license law.

If there is a dispute between the landlord and a tenant about the security deposit, the broker must send, within 30 days, written notice that the landlord intends to claim part of the security deposit. After complying with the legal requirements of the law, the broker may disburse the funds as the broker sees fit, and need not notify the FREC about conflicting demands.

Brokers’ Rights to Commissions in Escrow Deposits

If a party who is entitled to escrow funds disputes the broker’s right to a commission, the broker can retain the disputed amount in the escrow account until the matter has been settled.