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Interpleader Action

DEFINITION

Civil procedure action that places the burden of proof on two or more parties to resolve a dispute regarding whom the property should be transferred to.

EXPLANATION

In the event that a dispute arises amongst principals in escrow, the agent must wait for the principals to reach a resolution and give subsequent direction. An interpleader action is a legal measure whereby a plaintiff can bring forth a lawsuit to force other parties to resolve a dispute through court. Interpleader actions occur when an escrow company does not have clear direction from the principals of a transaction due to a dispute between the parties. Should a dispute fail to be resolved in a reasonable time frame, the escrow agent may go to the county court and file an interpleader action. An interpleader action is a civil procedure initiated by one party (escrow agent) which compels two or more other parties (principals) to resolve a dispute. Once the dispute is resolved, the agent will then enforce new instructions.

Purpose of Interpleader Action

When the buyer/seller/agent of a transaction have a dispute regarding the purchase or selling of a property, oftentimes escrow is stuck between not knowing what to do. Because escrow is responsible for following instructions and not creating them, they do not have the capacity to decide between whom is right or wrong in a buyer/seller dispute. When instances like this arise, escrow often files for an interpleader action. An interpleader action is a legal measure that initiates a lawsuit so that the court can institute the correct remedy for the principal’s disputes.

When this happens escrow deposit buyer and seller funds the court, thereby temporarily or permanently releasing liability from themselves. If the transaction will move forward, escrow will likely continue the process with the new instructions. The purpose of an interpleader action is to settle the dispute between the buyer and seller so that escrow knows what to do next. Escrow is in the business of following buying/selling instructions, they are not deciders of right and wrong, therefore they initiate an interpleader action to avoid further financial or legal liability.

Parties of an Interpleader Action

As stated in the escrow page, escrow is a mutual third party that handle deposits and executes directions of the transaction. They do not owe either the buyer or seller a duty, which is why an interpleader action is a reasonable remedy to determine what escrow can do next. Escrow is not required in any way to wait a specific period of time before initiating an interpleader action.

The benefit of the interpleader action is it allows all parties of the transaction to voice their concerns to come to an amicable conclusion. While it is certainly possible to resolved disputes outside of court, many disputes do not get resolved until they go to court because both sides believe they are correct and/or do not want to lose or give up anything to come up with a conclusion to the matter.

How an Interpleader Action Works

Prior to an interpleader action occurring, there must be a real estate dispute in escrow between the party’s. Once a dispute arises, if it cannot be settled, escrow has the ability to file an interpleader action. An interpleader action releases escrow from general liability. This is done because escrow does not want to side with one party over the other.

The first part of an interpleader action involves escrow to file the complaint and any money or documents related to the transaction to the court. Once filed, the court will serve the parties. Once served, the lawsuit will state the names of the parties and dispute and details regarding the transaction. At this point parties go to court and determine their rights. Parties have the ability to settle claims prior to going to court, which oftentimes happens because it costs time and money. The court will make a judgement regarding the rights of the parties. Parties can also be discharged of obligations depending on the ruling of the court.

A discharge motion is granted through a motions filing. Typically, this motion will indicate attorney and court costs related to the transaction. After determination of the motion, the proper parties must be paid or released.

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