Escrow Disputes Explained: What Happens When a Sale Falls Through

🏦 What Is an Escrow Dispute?

An escrow dispute occurs when the buyer and seller disagree over who should receive the earnest money deposit after a contract is canceled. These disputes usually happen when one side believes the other failed to meet a condition of the agreement — such as financing, inspections, or deadlines.

• Common trigger: Buyer backs out after deadlines or contingencies expire.
• Seller perspective: They believe the buyer defaulted and want to keep the deposit.
• Buyer perspective: They believe they acted within rights and want their money refunded.

In most cases, the escrow holder — often a title company, attorney, or brokerage — keeps the funds until the dispute is resolved.

⚖️ Common Causes of Escrow Disputes

Disputes typically occur when the contract terms aren’t clear or when one party fails to cancel or close properly. Common examples include:

• Buyer fails to obtain mortgage pre-approval or financing.
• Inspection or appraisal issues lead to disagreement on repairs or price.
• Closing delays cause one party to terminate outside of contract terms.
• Seller accepts another offer before the first contract is fully canceled.

The escrow agent cannot release funds until both parties sign a release form or a court order is issued. Until then, the money stays in the escrow account for safekeeping.

📝 How Escrow Disputes Are Resolved

There are several ways an escrow dispute can be settled, depending on the state and contract language. Here’s how most cases are handled:

• Mutual release: Both parties agree in writing to release funds to one side.
• Mediation or arbitration: A neutral third party helps resolve the disagreement.
• Court action: If no agreement is reached, the escrow holder may file an interpleader action, asking the court to decide.

Understanding the terms of your purchase contract is key. Always review earnest money clauses before signing to avoid surprises if a sale falls through.

💡 Tips for FSBO Sellers

When listing with Brokerless, sellers benefit from transparent paperwork and experienced guidance throughout the escrow process. To minimize the risk of disputes:

• Use a professional escrow agent or title company.
• Keep all deadlines and contingency dates clearly documented.
• Communicate promptly with buyers and agents if issues arise.
• Ensure the purchase agreement spells out refund or forfeiture rules clearly.

These steps can help prevent disputes and ensure a smoother closing — even if the sale doesn’t go as planned.

🏡 Simplify Your FSBO Sale with Brokerless

Brokerless helps homeowners list on the MLS, manage offers, and navigate escrow with confidence — all for a one-time flat fee. Stay protected and in control of your sale from start to finish.