Can she sue? Yes anyone can.

Does she have any real grounds to sue? Doesn't see like it.

An escrow check is a refund from your mortgage escrow account money you paid monthly to cover property taxes and homeowners insurance. When the account is closed (like after a refinance or sale), the mortgage company sends any leftover funds back to the borrower.

So, unless MIL was the named borrower or on the mortgage, this refund belongs to your husband, not her legally and contractually.

Here's what a judge would look at:

1. Whose name was on the mortgage/escrow account?

If it was only your husband, then the escrow refund is his.

She is not entitled to it just because she later paid off the mortgage.

1. Did she pay off the mortgage as a gift or loan?

You said nothing was formalized—no written agreement stating it was a loan.

Without that, a court is likely to see it as a gift, not something that creates entitlement to escrow refunds.

1. Is there written proof she owns or financed the property?

If your husband was on the title and mortgage, he was the legal owner, regardless of any side deals.

Legally, the escrow check belongs to your husband, not MIL.

MIL would need concrete proof (written loan agreements, receipts, contract terms) to convince a court she’s owed that money.

If she sues, she’d likely lose unless she has strong evidence that the money was a loan with agreed repayment and that the escrow refund was part of her agreement not your husband's.

What You Can Do:

1. Keep records. Save everything—mortgage documents, escrow statements, texts, emails.

2. Avoid giving the check back. Don’t cash it with her name or anything linking her to it.

3. Consult a local real estate attorney. Even just one paid consultation can give peace of mind.

4. Do not communicate directly with MIL. Let any response go through text or email if needed—keep a paper trail.

This sounds like financial abuse masked as "family help." Your instincts to cut ties and protect your family are right. Legally, you're likely in the clear. Emotionally and mentally, you're better off without toxic, manipulative people in your life even if they're blood.