What is an Interpleader Action?

Here is the scenario.  The proposed sale of a residence has collapsed.  Both buyer and seller are upset with the other, and each is claiming the entire $1,000.00 earnest money.  Neither side will give up their claim to the money, despite your best efforts to help mediate a solution.  Soon threats of lawsuits start flying.  What should you, the real estate agent or broker, do?

First, look to the plain language of the Purchase and Sale Agreement.  If it’s a custom Purchase and Sale form, it may have specific instructions as to who gets what, and under what circumstances.  A more standardized form may use general language, and thus be less helpful.  Assuming you have reviewed the Purchase and Sale Agreement, and the parties still can’t agree, what is your next course of action?  Well, if your brokerage holds the earnest money deposit, you may consider what is called an “interpleader” action.

An “interpleader” action is used when more than one person is claiming either money or property held by a third person.  The interpleader paperwork (called a Complaint) is essentially a written request to a Court to determine who is entitled to the funds.  The Court will then decide who is entitled to the funds or property in dispute and in what amounts.  The Plaintiff (sometimes called a stakeholder) files the action and the Defendants are the competing claimants.  The case gets filed in the Superior Court of the applicable county.  From a practical standpoint the competing claims should be related to the same transaction or set of circumstances to ease resolution of the case.

Under RCW 4.08.170, the Plaintiff may disclaim any interest in the money, property or indebtedness, and deposit with the Court Clerk the full amount of money or indebtedness, or other property, and the Plaintiff will not be liable for any cost accruing in such an action.  The Court Clerk will receive and file the Complaint and will then take the necessary steps to carry out the purposes of the statute free from all charge to the Plaintiff.  The Court, in its discretion, will determine the liability for costs of the interpleader action.

There are two stages in bringing an interpleader action.  The first stage consists of filing the lawsuit with the Court, paying the disputed funds into the registry of the Court, and serving the competing Claimants/Defendants, with copies of the lawsuit.  The Plaintiff may also seek an Order of Discharge for further liability for holding those funds.  The second stage then consists of the competing Defendants presenting their arguments to the Court as to why each is entitled to the disputed funds.  The Court will weigh the arguments, and “the superior right, title or lien, whether legal or equitable,” shall prevail (RCW 4.08.180).  The Court may then also assess the cost of the action.

In sum, filing an interpleader action can relieve you of a difficult situation, as well as potential liability for holding onto the funds others are claiming.

This article contains information of general interest, and is not intended to be, nor should it be relied upon as a substitute for specific legal advice.