Tennessee affiliate broker Diane is holding $12,000 in earnest money in her broker's escrow account. The transaction falls through due to a disputed breach, and both buyer and seller claim the earnest money. Diane is unsure who is entitled to the funds. What is the correct course of action for Diane under Tennessee law?
Correct Answer
C) Diane should retain the funds in escrow and may file an interpleader action with a Tennessee court to have the court determine entitlement
Under Tennessee real estate licensing law and TREC rules, a broker holding disputed earnest money must not unilaterally release funds to either party. The appropriate remedy when both parties claim the same escrowed funds is to retain the money in the escrow account and, if the dispute cannot be resolved, file an interpleader action in a Tennessee court. Interpleader allows the court to determine the rightful owner of the funds, protecting the broker from liability for making an incorrect disbursement.
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Related Topics & Key Terms
Key Terms:
Related Concepts
Earnest money is a deposit made by the buyer at the time of the offer or shortly after to demonstrate good faith and serious intent to purchase the property. It is also called a good faith deposit.
Equitable title is the buyer's interest in a property after a purchase contract is signed but before closing, giving the buyer the right to acquire legal title in the future. The seller retains legal title until the deed is delivered at closing.
A financing contingency makes the purchase contract conditional upon the buyer obtaining mortgage approval within a specified time period. If the buyer cannot secure financing, they can cancel the contract and receive their earnest money back.
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