Earnest Money & Interpleader Action

Any questions, please contact Byron King at SCAR at (800) 233-6381 toll free or (803) 772-5206 in Columbia.

Below are links to SCAR forms to use in Magistrate Court Earnest Money (Interpleader) Cases:

Sample Interpleader Forms:

What do you do when the deal does not close and the buyers and sellers refuse to sign the releases?

You’ve done your job and brought a willing buyer and willing seller together. A contract was signed and the earnest money has been escrowed into your proper account. Now, the worst case scenario unfolds. The property transaction does not close and is not going to close.

Next the buyer and seller start asking the REALTOR® about the earnest money deposit. Both buyer and seller blame the other for the deal not closing and consider the other party in breach of contract. Tempers flare. What do you say?

Per the SCAR contract “Agreement to Buy and Sell Real Estate”Section #7:

“The parties understand that, under all circumstances, including default, the escrow agent holding the earnest money deposit will not disburse it to either party until both parties have executed an agreement authorizing the disbursement or until a court of competent jurisdiction has directed a disbursement.”

The agreement authorizing the disbursement is called the “Release of Agreement to Buy and Sell Real Estate”

The key part of this agreement is:

“That each of the parties hereto in consideration of each of the parties releasing all of the other parties from the aforesaid Agreement to Buy and Sell Real Estate, do hereby release each of the other parties and Escrow Agent to said Agreement from any and all claims, actions or demands whatsoever which each of the parties hereto may have up to this date against any of the other parties hereto by reason of said Agreement to Buy and Sell Real Estate…It is the intention of this Agreement that any responsibility or obligations or rights by virtue of said Agreement are by this release declared null and void and of no further force or effect.”

Having the parties sign this release document is the REALTOR®’s liability shield. It is a very important document.

Filing an Interpleader Action
Prior to SCAR leading the State Legislature to pass the “Interpleader Act” , a REALTOR® having the earnest money deposit in their escrow account had no quick and inexpensive judicial resolution process.

Specifically, the Interpleader Act amended SC Section 22-3-10 and added SC Section 22-3-15 in the above mentioned statute link. Now, the REALTOR® has a fairly speedy and inexpensive judicial procedure. Magistrate Court allows for a quicker and less expensive resolution to the dispute between the buyer and seller that tells the REALTOR® how to disburse the earnest money. This prevents the other party from suing the REALTOR® for disbursing the earnest money to the wrong party.

The Interpleader Act allows REALTORS® to use the Magistrate Courts to resolve this problem.

Magistrate Courts are the real work horses of the SC judicial system. Although their user friendliness may lull one into thinking that the Magistrate Court is not as important as a Master in Equity Courtroom or Court of General Sessions/Common Pleas, do not be fooled. A Magistrate Judge can decide cases worth up to $7,500 and can imprison people. The SC Rules of Evidence control the procedure in the courtroom.

To an extent, Magistrate Courts are like television “People’s Courts.” The Magistrates use a lot of common sense and grant a lot of leeway to the parties. Forms are friendly to the non-lawyer users and the staff is accustomed to guiding non-lawyers through the process. Fees are minimal.
An escrow money dispute typically costs $65 ($45 to file the case and $20 for service of process on the buyer and seller). Cases must be filed in the county where either the buyer or seller resides.

Lawyers are not necessary in the earnest money dispute process in Magistrate Court. Going through the Magistrate Court for a typical earnest money dispute ($500 to $1,000) should not require any attorneys and should cost approximately $65. Your company may wish to include in the contract of sale who will pay this $65.  Although this is a fairly small amount of money, if your company is handling several a month; it soon can become expensive.

However, should case law or statutes be cited; the Magistrate will follow SC Court rulings. Additionally, objections to evidence will be ruled on following SC Court Rules of Evidence. Magistrate Court is different from the People’s Court in that a lawyer can use procedural rules that most non-lawyers are not trained in to increase the chances of their side prevailing.

Because the Magistrate Court will follow SC law on procedure and evidence, having an attorney with you can give you a powerful advantage. Keep this in mind as advice for your client or if you are using the Magistrate Court at another time for yourself in disputes other than earnest money. Often the other side will not bring an attorney because they think Magistrate Court is like television “People’s Court.” This further magnifies the advantage of having an attorney representing you. Of course, this is an economic decision which balances the cost of an attorney versus the amount in dispute.

Magistrate Court should resolve a typical earnest money dispute in about
2 months and cost approximately $65, plus your time and effort. Prior to
the new law, an earnest money dispute could take up to 2 years and
cost approximately $2,000 going through Master’s Court or a Court of Common Pleas.

Other options to resolve earnest money disputes include voluntary mediation or arbitration. Your local board or association can give you guidance on using mediation or arbitration. Simply contact the Board/Association Executive Officer for information. Typically, the cost for this type of resolution is approximately $200-$300.

Using a Magistrate Order to disburse the earnest money gives you the REALTOR®® a liability shield. It limits your exposure. However, even the relative short duration of the Magistrate process may cause problems for your buyer if they are trying to use the earnest money to put down on another home should their first deal fail to close.

Please advise buyers that earnest money’s purpose is to show that they are serious about buying a house; and should the deal not close, the seller may decide that they are entitled to the money. When an earnest money dispute arises, the money will be tied up until the Judge rules. Therefore, the buyer should be very serious about buying the property before any amount of money is placed as earnest money.

When a deal does not close, use your best sales skills to have the buyer and seller sign the releases. This is your quickest and cheapest way out of the deal. Failing this, Magistrate Court is the next quickest and cheapest route. If you disburse the earnest money without a judicial order, you are breaching the contract and may open yourself up to a lawsuit.

Please bear in mind that this law is new (January 1, 2003). Although the Magistrate staffs were trained on the new law in November 2002, many of the staffs are unfamiliar with the procedure and may give you a blank stare when you first come into contact with them. If you have a situation where the staff is unfamiliar with the Interpleader process (which is typical), please contact SCAR and we will have someone from the South Carolina Court Administration Department contact the Magistrate staff and train them on how to handle your case.

When dealing with the Magistrate Office, please keep in mind the organization of the offices. Generally, the Office will have a judge who is assisted by two primary clerks. The Criminal Clerk handles criminal matters, generally traffic violations. The Civil Clerk is the clerk with whom you will be dealing. Anyone else in the office is just assistant and administrative type workers with limited knowledge and experience.

Should you have substantive questions, please ask for the Civil Clerk first. If the Civil Clerk is unable to assist you, please ask to speak to the judge. Remember that these staffs are overworked and probably feel underpaid. Politeness, civility, and respect should get you much more cooperation than anger will.