A broker holds $6,000 in earnest money after a transaction falls through. The buyer demands a full refund, but the seller claims entitlement to the deposit as liquidated damages. The purchase contract's default clause is ambiguous and does not clearly resolve which party is entitled to the funds. Under NY DOS regulations, what is the broker's required course of action?
Correct Answer
D) Continue holding the funds in the trust account and, if the parties cannot reach a written agreement on disbursement, commence an interpleader action to have a court determine entitlement
Under NY DOS regulations and DOS guidance, when a broker faces a genuine dispute over trust funds and the contract does not clearly resolve entitlement, the broker must not make a unilateral disbursement to either party. The broker's first obligation is to continue holding the funds safely in the trust account. However, simply holding the funds indefinitely without taking action is insufficient — the broker must actively work toward resolution. If the parties cannot reach a written agreement, the broker should commence an interpleader action, depositing the disputed funds with the court and allowing a judge to determine the rightful recipient. This protects the broker from liability, satisfies the DOS requirement to safeguard trust funds, and provides a legally binding resolution neither party can later challenge.
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