How Escrow Disputes Are Handled in Real Estate Transactions

By WWLT

Most of the time, real estate closings can go through without issue. The buyer puts money in escrow to cover the closing costs, and once closing is completed, those funds are released to the seller. At World Wide Land Transfer, we have facilitated countless real estate transactions, so we know how to make sure they go smoothly.

Unfortunately, not every real estate transaction can be so trouble-free. In some instances, escrow disputes arise that can delay closing, or even put the brakes on the entire deal. Of course, both parties in a real estate transaction generally want the deal to go through, so an escrow dispute doesn’t have to mean the deal is off, as long as both parties can come to an agreement. World Wide Land Transfer stands out above other escrow companies. 

What Causes Escrow Disputes?

As closing day approaches, and even during the closing process, some issues can arise that make it impossible for the deal to go forward. 

These issues might include:

• Failed Inspections – When certain issues are discovered during an inspection, the buyer might wish to change the terms of the deal to account for the cost of resolving them.
• Title Defects – If the title insurance company discovers title defects during a title search, it can prevent the property from being sold legally. Again, the buyer may wish to negotiate a new closing agreement that will allow these title defects to be resolved.
• Issues with Financing – If the buyer experiences delays or other issues with their financing, they may need to adjust the timeline of the closing or make other changes to the closing agreement.
• Contractual Disagreements – Issues may arise regarding the terms of the closing agreement. The buyer and seller may not agree on who should cover certain costs, for example.

When an escrow dispute occurs, it will need to be resolved before closing can be completed. If the buyer and seller can’t come to an agreement, they will still need to discuss how escrow funds and earnest money will be distributed to each party. 

These goals can be achieved through the following means:

• Mediation – In escrow disputes, a neutral third party will be brought in to help resolve the issue. Once they have communicated with both the buyer and seller individually, they will come up with a resolution plan. If both parties agree to that plan, the dispute is resolved and the transaction can go forward. If not, other methods will need to be employed.
• Non-Binding Arbitration – Unlike a mediator, an arbitrator does not approach each party individually to come up with a resolution plan. Instead, each party comes to the arbitrator and pleads their case, after which the arbitrator makes a ruling. In non-binding arbitration, neither party will be required to accept the terms of that ruling. If the ruling is not acceptable to either party, binding arbitration may be necessary.
• Binding Arbitration – This process works exactly the same as non-binding arbitration, except that the decision made by the arbitrator is considered final and both parties must abide by it. In situations where mediation and non-binding arbitration have not resulted in a satisfactory conclusion for one or more parties, binding arbitration is the last chance for them to achieve their goals.

When you have already put in the work required to make a real estate transaction happen, any issues that arise late in the process can be devastating. Because it benefits both parties – and the escrow company – to resolve these issues, your escrow services company may be able to assist you. They may be able to help you by bringing in a mediator or arbitrator to negotiate a new closing agreement, or take other steps to ensure the transaction can go through.

The Role of Escrow Agents in Dispute Resolution

Do you need escrow in New York? In many cases, escrow agents can play a key role in helping to resolve disputes before they escalate. Because they are a neutral third party with a fiduciary duty to both buyer and seller, escrow agents can clarify the terms of the agreement, explain the status of funds, and help both parties understand their options. This can often de-escalate tension and encourage productive discussions that lead to a resolution. In some instances, simply confirming what was agreed upon in writing and reviewing supporting documents can resolve confusion and move the transaction forward.

Legal Action as a Last Resort

If mediation and arbitration fail to produce a mutually agreeable outcome, the final option may be to pursue legal action. This is typically the least desirable route due to the time and cost involved, and it may result in delays that impact other aspects of the transaction. However, when one party believes they are legally entitled to the escrow funds or performance under the contract, litigation may be necessary. Buyers, sellers, and agents should always consult with a qualified real estate attorney before taking legal action. World Wide Land Transfer can provide support and documentation needed to aid in the legal process, ensuring that all actions taken are based on accurate records and established agreements.

Preventing Escrow Disputes Before They Happen

One of the best ways to handle escrow disputes is to prevent them from arising in the first place. Thorough preparation and communication at the outset of the transaction can go a long way toward avoiding misunderstandings. Buyers and sellers should make sure they fully understand the purchase agreement, timelines, and contingencies before moving forward. Title companies, agents, and attorneys can assist by ensuring that every term is clearly defined, all parties are aware of their obligations, and potential issues are addressed early in the process.

The Importance of Clear Documentation

When a dispute does occur, the outcome often hinges on the quality and clarity of the documentation. Keeping accurate records of all communications, signed agreements, inspection reports, and disclosures is critical. These documents can be used to establish intent, clarify obligations, and support any decisions made by mediators, arbitrators, or the courts. At World Wide Land Transfer, we prioritize proper documentation and secure handling of all escrow-related materials to help protect our clients’ interests throughout the transaction.

As a full-service title and escrow services company, World Wide Land Transfer can assist you with real estate closings all over the country. Whether you are a buyer, seller, real estate agent, or lender, we offer a range of services related to escrow and title insurance, and if an escrow dispute arises, we may be able to help you resolve it. 

World Wide Land Transfer is a service-oriented PA title company with offices in Philadelphia, New York, and Washington, D.C. With a record of going above and beyond, we are trusted to close everything from complex commercial transactions to residential refinance and purchase transactions.