What Is Escrow?
Escrow is a financial arrangement where a neutral third party, called the escrow agent, holds money or documents on behalf of two parties in a transaction. The escrow agent releases the funds or documents only when all agreed-upon conditions have been satisfied. In Florida real estate, escrow plays two distinct roles: holding the earnest money deposit during the contract period, and managing the closing funds on the day of settlement.
Florida Legal Context
Florida law imposes strict requirements on escrow agents. Under Chapter 475, Florida Statutes, real estate brokers who hold escrow deposits must maintain a separate escrow account and cannot commingle escrow funds with their own. Title companies acting as escrow agents are regulated by the Florida Office of Insurance Regulation and must comply with trust accounting requirements under Chapter 626, Florida Statutes.
The standard FAR/BAR contract requires the buyer's earnest money deposit to be delivered to the escrow agent within a specified number of days after contract execution. If the deal closes, the deposit is credited toward the buyer's purchase price. If the deal falls through, the contract specifies which party is entitled to the deposit, and the escrow agent follows a dispute resolution process before releasing the funds.
Two Types of Escrow in Florida Real Estate
- Earnest money escrow — The buyer's good-faith deposit is held by the title company or real estate broker from the time the contract is signed until closing. This deposit demonstrates the buyer's serious intent and is typically 1% to 3% of the purchase price.
- Closing escrow — On closing day, all funds flow through the title company's escrow account. The buyer's funds (including the mortgage proceeds) are deposited, and the title company disburses payments to the seller, the existing mortgage holder, real estate agents, and taxing authorities according to the settlement statement.
What Happens to Escrow When a Deal Falls Through?
If the buyer and seller cannot agree on who gets the earnest money deposit, Florida law requires the escrow agent to follow one of several procedures. The agent may request both parties to sign a release, file an interpleader action in court (depositing the funds with the court and letting a judge decide), or follow the dispute resolution process outlined in the contract. The escrow agent cannot simply give the funds to whichever party demands them.
Related Terms
- Clear Title — Must be established before escrow funds are released at closing
- Title Insurance — Issued after the escrow agent disburses closing funds
- Closing Disclosure — The document that details how escrow funds are distributed
- Title Search — Completed before the escrow agent releases funds
Barnes Walker Escrow Services
Barnes Walker Title serves as the escrow agent on residential and commercial closings throughout Southwest Florida. The firm holds earnest money deposits in attorney trust accounts, manages closing fund disbursement, and handles escrow disputes when they arise. For questions about an escrow deposit or to schedule a closing, submit a title inquiry.
Florida Law Reference
Fla. Stat. § 475.25
Florida law requires real estate brokers to maintain escrow accounts for deposits and establishes dispute resolution procedures when buyer and seller disagree over earnest money.
Reviewed by the attorneys at Barnes Walker, Goethe, Shea & Robinson, PLLC