New York Real Estate Salesperson ExaminationBrokerage and Salesperson ResponsibilitiesMedium
A real estate broker is managing an escrow account. A dispute arises between the buyer and seller over the earnest money deposit. What is the broker's most appropriate initial action according to New York law?
- AImmediately return the funds to the buyer, as they initiated the offer.
- BTransfer the funds to their personal attorney for legal advice and distribution.
- CDisburse the funds to the seller, as they are the property owner.
- DHold the funds in the escrow account until the dispute is resolved by agreement or court order.
Show answer & explanationAnswer & explanation
Correct answer: D. Hold the funds in the escrow account until the dispute is resolved by agreement or court order.
When an escrow dispute arises, the broker acts as a neutral third party. New York law requires the broker to continue holding the funds in the escrow account until a written agreement is reached between the parties or a court order dictates disbursement. The broker should not unilaterally decide who receives the funds.
Why the other options are wrong
- A. The broker cannot unilaterally decide who gets the funds, even if the buyer made the offer.
- B. Transferring client funds to a personal attorney is not a standard or legally required procedure for resolving escrow disputes; the funds must remain in the dedicated escrow account.
- C. The broker cannot unilaterally disburse funds to the seller; this would violate their fiduciary duty of neutrality in a dispute.
Escrow Dispute Resolution (NY)
In New York, when a dispute arises over escrow funds, the broker must hold the funds in the escrow account until the parties agree in writing or a court orders disbursement.
- Broker remains neutral.
- Funds stay in escrow.
- Requires written agreement or court order.
Memory trick: When funds fight, let the law decide or parties unite