Legal Question in Real Estate Law in California

Re: Escrow Deposit

Ordinarily, the escrow holder must follow instructions given it by both (or all) parties, and cannot act on the instructions of one party alone. Also ordinarily, the escrow holder gets its joint instructions about handling deposits from the written purchase agreement itself, a copy of which is usually given to the escrow holder at the time escrow is opened and the parties are cooperating. Sometimes the parties give the escrow holder supplemental instructions regarding deposits. Rather frequently, this is an instruction to put the deposit into an interest-bearing account, especially if it is large and the escrow may or will be long.

Most pre-printed or professionally drawn-up purchase agreements have time limits for closing, late closing penalty provisions, and/or escrow cancellation provisions.

When deals fail to close, sometimes the instructions already given will provide for the return of the deposit, or the parties may recognize that it is fair for the deposit to be returned (or forfeited) and will instruct the escrow holder accordingly.

If the parties disagree and there is no clear instruction from both parties as to disposition of the deposit, the escrow holder's proper course of action is almost always to continue to hold the deposit until the dispute between the parties is settled. The settlement may come about by litigation, but very frequently real-estate purchase contracts have arbitration clauses (often pre-printed check-to-elect options in the contract) and so an arbitration award can also suffice to instruct the escrow holder who gets the money. Or, there can be a voluntary out-of-court settlement.

Escrow holders don't make assumptions about who is entitled to the deposit. They wait for the court, the arbitrator, or the parties themselves. For all they know, the deposit has been forfeited to the seller.

Re: Escrow Deposit

I am not sure what the time frame is, but if no one obtains a court order or engages the title company in a lawsuit, they hold the funds for a specific period of time (3-5 years). After that, the funds are sent to the State of California to hold under unclaimed property.