What must a broker do if a buyer demands return of their earnest money and the seller refuses, both claiming the money?

DISPUTED EARNEST MONEY is one of the most practically important broker trust account situations. When buyer and seller both claim earnest money: DO NOT release to either party without agreement or court order; HOLD IN TRUST until: (1) Written agreement signed by both parties directing disbursement; (2) Court order (from a civil judgment or mediation); (3) Arbitration award if the contract requires arbitration. If the dispute is protracted, the broker can file an INTERPLEADER action — the broker deposits the disputed funds with the court and asks the court to determine who is entitled to them. This protects the broker from liability for making the wrong disbursement decision. Some state real estate commissions have dispute resolution procedures for earnest money disputes specifically.