Interpleader Process to be Simplified
When a real estate transaction fails to close, the earnest money is often in dispute. In a fast-moving market, buyers want their money back immediately so they can find another property. Savvy sellers sense this anxiety and use it to their advantage by submitting a conflicting demand for the earnest money, forcing escrow to “interplead” the funds into the Court system. Since interpleader costs time and money, buyers commonly agree to an unfair split of the money in order to keep it out of interpleader and get it back quicker.
On Wednesday, April 22, Governor Inslee signed a bill into law that simplifies and shortens this process. The bill, known as SHB 1730, was promoted by the Washington Realtors® and others in the industry. It establishes an abbreviated timeline for interpleaders involving residential property. It provides as follows:
- Within 15 days from the receipt of a written demand from a party to the transaction, the holder of earnest money (usually escrow) must either:
- notify all other parties of the demand;
- release the earnest money to one or more of the parties; or
- commence an interpleader action in superior court.
- If the holder notifies all other parties, they must do so by e-mail and snail mail. The notice must include a copy of the demand and must contain a statement that the parties have 20 days to object to the release of the earnest money; and that if they do not object, the money will be released to the party that made the original demand.
- If the holder receives an objection or inconsistent demand within 20 days, it must interplead the funds within 60 days.
- The holder may release the funds or delay filing the interpleader action only if it receives consistent instructions from the parties after their initial objections.
- If the holder receives no objections, it must deliver the earnest money to the demanding party within 10 days of the of the expiration of the 20-day response period.
The holder may interplead the funds at any time, even if no conflicting demands were received. If they follow these procedures, they are not liable to any person for releasing the earnest money to the demanding party, unless it releases the funds on the initial demand without waiting for objections. A standard form summons and complaint is provided in the bill, and the holder is entitled to attorney’s fees and costs.
This bill is a win-win for everyone involved. Buyers can get their funds back faster, unless the seller objects within the 20 day period. Sellers have more clarity about what the process is, and escrow now has very clear instructions and a timeline for resolving disputed claims. Finally, the court system will benefit because it will only have to be involved in bona fide earnest money disputes.