Who Gets the Earnest Money?

Have you ever wondered what happens to the earnest money deposit when residential transactions fail to close?  The answer is found in a piece of legislation created by the State of Washington called the Interpleader.  Intending to resolve uncertainties surrounding the proper disposition of earnest money deposits, this process was clarified for SeattlebyDesign, by one of our favorite Title & Escrow companies, and we felt obliged to share it with you.  Note that earnest money can be held by title companies, escrow agents, and real estate licensees.

One Party Makes a Demand:

A Demand can be anything in writing that we receive from the buyer or seller that states the earnest money is to be returned.  A Form 35R inspection addendum signed by one party can be considered a demand from that party, for example.  Earnest money shall not be disbursed based on one party’s demand.  (Real Estate Brokers cannot make a demand on behalf of their clients, though they may forward their client’s written demand.)

Demands from one party shall be processed pursuant to RCW 64.04.220, which requires:

• That a Notice be sent to all other parties within 15 calendar days of receipt of the initial party’s demand.
• If after 20 days no agreement or objection is received, legal counsel will be employed to commence an interpleader action sometime within the following 60 days.
• If within 20 calendar days an objection is received from any party, legal counsel will be employed to commence an interpleader action sometime within the following 60 days.

Interpleader Action Process (a summary):

• Legal Counsel receives all parties’ names and conducts a conflict check.
• Legal Counsel receives earnest money funds check to be deposited in the Court Registry.
• Upon receipt of the check, they prepare the Interpleader Summons and Complaint and file it along with the check.
• Upon receipt of the confirmed copies with case number, those copies of the Interpleader Summons and Complaint are served on the parties and a Declaration of Service is filed with the Court.
• At this point, the County that the Interpleader is filed with may set up future hearings/status conferences that require the parties to appear.
• Finally, the parties either come to an agreement regarding the earnest money disbursement or, in the case of non-agreement, the court will hear each party’s position and issue a ruling.
• Once the Court makes its ruling, it will then disburse funds, and make record of the decision.