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Weekly Q&As

Can my firm disburse an earnest money deposit without the written consent of both parties?

 
Release Date: 3/10/2015

QUESTION:  I am the Broker-in-Charge for my firm. We represent a buyer in a transaction and my firm agreed to serve as the escrow agent. Our client paid a due diligence fee to the seller and deposited $5,000.00 in earnest money with our firm (the "EMD"). Several weeks ago, and during the due diligence period, our client decided to terminate the contract. We immediately delivered the standard Termination Notice (form 350-T) to the listing agent and we asked him to have the seller sign page 2 of the Notice to acknowledge that our client is entitled to a refund of the EMD. So far, despite a follow-up request, we have not received a signed acknowledgement. Our buyer-client wants to put an offer on another house but she needs her $5,000.00 EMD to use as a deposit on the new home. The seller has not disputed our client's entitlement to the EMD. Can we disburse the EMD without something in writing from the seller?

ANSWER:  The answer to your question is yes. However, our strong recommendation is that, even in the absence of an actual dispute, an escrow agent should always attempt to obtain written consent from both parties to a terminated transaction before disbursing an EMD to either party.

If either party disputes the other's entitlement to the EMD, even if the dispute has no basis, your firm's duty as an escrow agent is clear. As is noted in both paragraph 1(f) of the Offer to Purchase and Contract (form 2-T) and on page two of form 350-T, a broker-escrow agent is required to retain the money in its trust account until (a) a written release from the parties is obtained, (b) disbursement is ordered by a court, or (c) the funds are deposited with the clerk of court in accordance with the provisions of N.C.G.S. §93A-12.

What if there is no dispute but one party is totally silent when the other party requests disbursement of an EMD? Rule A.0116(e) of the Real Estate Commission Rules (the rule entitled "Handling of Trust Money") states that, except for transfers of an EMD to a closing attorney or other settlement agent, "A broker shall not disburse prior to settlement any earnest money in his or her possession for any other purpose without the written consent of the parties." The legal staff at the Real Estate Commission interprets the written consent language in A.0116(e) to apply only to ongoing transactions. In the context of a terminated transaction, the Real Estate Commission’s legal staff has opined that “written agreement by both parties is the safest course and, where possible, the best process. However… (we) would not discipline a licensee who disburses an EMD from a terminated transaction so long as he (or she) has no evidence of a dispute and has attempted to obtain written consent. As always, we would tell a licensee to document, document, document such attempts.”

NCAR provides articles on legal topics as a member service.  They are general statements of applicable legal and ethical principles for member education only.  They do not constitute legal advice.  If you or a client requires legal advice, the services of a private attorney should be sought.  Always consult your broker-in-charge when faced with a question relating to the practice of real estate brokerage.

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