What is "interpleader"?

The concept of "interpleader" refers specifically to a legal procedure used to resolve disputes where multiple parties claim rights to the same funds or property, typically involving a neutral third party. When funds are held in an escrow account, and there are competing claims from different parties over those funds, an interpleader action allows the party holding the funds to file a lawsuit in order to have the court determine who is entitled to the funds. This protects the holder from liability by allowing the court to decide the rightful claimant, rather than having the holder face potential legal action from the claimants.

In the context of title insurance and real estate transactions, understanding interpleader is particularly important because disputes can arise over earnest money deposits, insurance claim proceeds, and similar financial transactions, necessitating an impartial resolution. This mechanism ensures that disputes involving entitlement to funds are handled fairly and legally, minimizing the risk involved for those managing the funds in question.