What happens if a dispute occurs when funds are in escrow?

In the majority of real estate transactions, escrow arrangements are made to guarantee funds to the seller from the buyer upon the completion of the sale. A third party holds onto the funds, so neither of the other parties has access to them until the deal is finalized or cancelled.

Sometimes, disputes do arise, and that can mean that the third-party escrow agent receives conflicting instructions. The buyer might say not to pay, whereas the seller may suggest the sale is finalized.

What happens if there is a dispute when funds are in escrow?

If a dispute arises when funds are in escrow, the funds are frozen. At that time, neither party may access the funds until the dispute is resolved. Besides funds, the deed to the property may also be held in escrow.

What should you do if you have a dispute?

If you have a real-estate dispute, it's a good idea to talk to your attorney quickly about mediation or negotiations. While some escrow instructions give you ways to resolve problems through dispute resolution techniques, others turn to mediation. A neutral third party listens to each party and helps the two parties come to a solution. The mediator does not have a right to force parties to make a decision or to make a decision for them.

If mediation doesn't work, arbitration is the next step. This form of dispute resolution uses a third-party arbitrator who acts like a type of judge. This person makes a decision after hearing both sides of the argument. The decision is usually binding.

After an agreement is made, the escrowed funds or deed can be released.

Source: SFGate, "Who Decides Real Estate Escrow Disputes?," accessed Nov. 24, 2017