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Real Estate · Trust Accounts and Recordkeeping

When there is a dispute between buyer and seller over who is entitled to the earnest money, what should a broker holding the funds generally do?

Correct answer

Keep the disputed funds in the trust account and not release them until the parties resolve the dispute or until directed by a proper process such as a court order, interpleader, or mediation

  1. A Give the money to whichever party asks first
  2. B Keep the disputed funds in the trust account and not release them until the parties resolve the dispute or until directed by a proper process such as a court order, interpleader, or mediation
  3. C Keep the funds as the broker's commission
  4. D Split it evenly without authorization

Why this is the answer

When buyer and seller dispute entitlement to earnest money the broker is holding, the broker must not simply pick a side or take the money. The funds stay in the trust account, and the broker waits for a proper resolution: the parties' mutual written agreement, a mediation or arbitration outcome, a court order, or an interpleader action in which the broker deposits the disputed funds with the court to decide. Some states allow the broker to follow specific statutory procedures after a waiting period. Releasing or converting disputed funds improperly is a serious trust-account violation, so brokers must understand the lawful options for handling earnest-money disputes.
Source: ARELLO Broker Earnest Money Disputes

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