Interpleader

The Language of Real Estate

Interpleader

A legal proceeding whereby an innocent third party (stakeholder), such as an escrow agent or broker, can deposit with the court property or money that the party holds and that is subject to adverse claims so that the court can distribute it to the rightful claimant.

By using interpleader, the stakeholder can avoid the risk of being held liable to the wrong party and ensure that the rightful owner or beneficiary receives the property or funds. It also streamlines the resolution process by consolidating all the claims into a single legal proceeding.

The distribution of deposit or earnest money held in escrow is often a problem when the buyer and the seller are in dispute over the purchase contract.

Generally, the escrow agent will not release the funds until all parties—including the broker—sign a cancellation of escrow form.

If one of the parties refuses to cancel the escrow, then no one can recover the deposit money. If the escrow agent cannot get the parties to agree on the disposition of the deposit money, one recourse is to file an interpleader action asking the court to accept the money and distribute it to the rightful claimant.

Interpleader is commonly used in various situations, such as:

Escrow accounts held by a third party in real estate transactions.

Life insurance policies where multiple beneficiaries claim the proceeds.

Retirement accounts with competing claims, such as former spouses or multiple dependents.

Disputes over funds held by financial institutions, especially in cases involving deceased account holders.

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