Proper Handling of Earnest Money Deposits Payable to Third Party Escrow Agents
QUESTION: I have noticed that many smaller firms no longer have trust accounts to hold their clients’ earnest money deposits. Many of the offers I have received recently name an attorney as the “Escrow Agent” in paragraph 1(f) of the Offer to Purchase and Contract (form 2-T). What are my responsibilities as listing agent to confirm delivery of the buyers’ earnest money to the attorney? What are the duties of the buyers’ agent? Finally, what are the duties of the Escrow Agent?
ANSWER: The Offer to Purchase and Contract makes it clear that both the Initial Earnest Money Deposit and any Additional Earnest Money Deposit must be made payable to the Escrow Agent named in paragraph 1(f). The contract specifies deadlines for the delivery of those deposits and also specifies the action that a seller should take if the Initial Earnest Money Deposit is not delivered on time.
Paragraphs 1(e) and 1(f) of the Offer to Purchase and Contract set forth the manner in which all Earnest Money Deposits should be held and ultimately disbursed by the Escrow Agent. By signing the “Escrow Acknowledgement” on the last page of the contract, the Escrow Agent agrees to hold and disburse the Initial Earnest Money Deposit in accordance with those provisions.
In order to protect their clients’ interests, the listing agent and the buyer’s agent both have a duty to confirm that the Earnest Money Deposit is delivered to the Escrow Agent in a timely manner. Those duties exist regardless of whether the Escrow Agent is the listing firm, the buyer’s agent, or a third party.
If the Initial Earnest Money Deposit is delivered to the listing agent with the buyer’s offer, the listing agent should arrange for prompt delivery of that deposit to the named Escrow Agent, and obtain that agent’s signature on the Escrow Acknowledgement. If the Initial Earnest Money Deposit is not delivered with the buyer’s offer, the listing agent should ask the buyer’s agent to arrange for delivery of that deposit to the Escrow Agent. The listing agent should insist that the buyer’s agent provide a dated Escrow Acknowledgement signed by the Escrow Agent. If no written confirmation of the delivery is received, the listing agent should suggest sending a written notice demanding immediate payment of the requisite funds.
Ideally, all Escrow Agents will sign the Escrow Acknowledgement to confirm their receipt of the Initial Earnest Money Deposit and their agreement to hold and disburse that deposit in accordance with the terms of the contract. However, where the Escrow Agent is an attorney, an email from that attorney confirming the receipt of both the funds and the contract is sufficient.
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