Do you remember Paragraph 10 from our standard Sales Contract? Let me refresh your memory.

10. DISBURSEMENT OF DEPOSITS.
The parties to this Agreement agree that deposit monies held on account as specified herein shall only be disbursed under one of the following conditions:

1. Upon final settlement hereunder; OR
2. Upon a release being signed by all parties to the transaction authorizing disposition of these funds; OR
3. Upon the filing of an interpleader action in the proper court, thereby causing these funds to be deposited with the court; OR
4. At such time as one of the parties to the transaction files suit and the court orders the disbursement of these funds.

What is an interpleader action?
I am not an attorney, but a good friend and a great real estate attorney whose name he asked me not to give, but whose office is located on Rehoboth Avenue near the Lingo office, offered to give me a short law class. So here goes.

An interpleader action usually results when a Buyer and Seller are having a dispute, and one of the two parties is asking for a return or retention of the deposit. If neither party files a legal action in a court, and the real estate company wants to get the matter resolved and the escrow funds out of their account, an interpleader action can be filed by the real estate company.

According to my attorney friend, an innocent stakeholder (the real estate company) claims no interest in the deposit, simply holding it for two other people. In an interpleader action, the real estate company files suit in the same manner as any other legal action. This forces one or both of the parties, the Buyer and Seller, to answer the complaint. The deposit is placed in the custody of the Court. If both the Buyer and Seller answer the complaint, the matter is then set down for a hearing, the real estate company is removed from the legal fray, the court hears the matter, and renders a decision as to whom the deposit belongs. If one of the parties (Buyer or Seller) does not appear, a default judgment may be entered against the party who does not appear, and in most cases, the deposit will be given to the party who answered the complaint. If both parties answer the complaint, the Court could recommend arbitration as a solution.

So the next time you're reviewing Paragraph 10 of a Sales Contract, you'll have this handy reference for an explanation.

See you next week!

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