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Interpleader Actions: Potential for Resolving Real Estate Escrow Disputes

An interpleader action aims to determine the party who is entitled to receive money or property when a neutral third party is holding funds or property and is confronted with two or more claimants to the same money or property.  The interpleader action allows for the neutral third party, or “stakeholder,” to avoid liability to any of the claimants by forcing the claimants to litigate among themselves and let the Court determine who deserves what.

Here is an example scenario: A real estate escrow company is holding funds during a real estate transaction.  The potential buyer deposits a good faith deposit into the escrow account as escrow opens.  Then, the buyer backs out of the deal.  The seller demands that the escrow company release the good faith deposit to him, claiming he is the rightful owner of the funds as it was a non-refundable deposit.  The escrow company tries to confirm the release of the funds with the buyer, but the buyer is nowhere to be found.  The escrow company could be liable to the buyer’s claim that the money was released without her knowledge/approval, so it balks at the seller’s demand for the money to be released.   The escrow company is now stuck in the middle of the potential buyer and the seller, holding all the cash.

In a case like this, an interpleader action would be a way for the stakeholder (escrow company in the example above) to be discharged from liability to either claimant.  Once the interpleader action has been initiated, first the Court will determine whether interpleader is a proper avenue for resolution.  If confirmed, then the stakeholder will be discharged and finally the Court will determine the rightful owner(s) of the funds.

Attorney Richardson “Red” Griswold handles all legal aspects related to real estate transactions, including interpleader actions.  Please contact Griswold Law at (858) 481-1300 or rgriswold@griswoldlawsandiego.com for more information about real estate law.

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