What happens when the listing firm, seller, and buyer all claim the Earnest Money Deposit?
QUESTION: About a week after the Due Diligence Period expired for one of my firm’s listings, the buyer decided to pull out of the deal. The seller was understandably frustrated, and instead of putting the house back on the market, he decided to withdraw the listing altogether. Of course we told the seller that we understood his decision, but when we told him that our firm was going to take half of the Earnest Money Deposit to cover our expenses, he threatened to go see a lawyer.
As if the issue with our client wasn’t bad enough, the buyer just emailed our firm today also demanding the Earnest Money Deposit. She claims that the seller failed to disclose a material fact about the home. Can you tell me how to distribute the Earnest Money Deposit?
ANSWER: Unless you can obtain a written release from the seller and the buyer, the entire amount of the Earnest Money Deposit must be disbursed in accordance with 21 NCAC 58A .0116(d). This means that your firm will follow the procedures for turning the Earnest Money Deposit over to your local clerk of court under Section 93A-12 of North Carolina’s General Statutes.
Paragraph 11 of the standard form listing agreement (Form 101) provides that “[a]ny earnest money forfeited by reason of the buyer’s default under a sales contract shall be divided equally between the Firm and Seller.” In some cases, the buyer’s default may not be in dispute, but in this case both the buyer and seller have a claim that the other defaulted on the contract. Thus, it is not clear whether the Earnest Money Deposit will actually be forfeited by the buyer. Since the forfeiture is not certain, your firm cannot exercise its right to take half the earnest money at this juncture.
Section 93A-12 states that your firm must send notice to all persons claiming ownership of the earnest money and then wait 90 days before depositing the money with the clerk. Once that happens, your firm, or the buyer or seller, can file a special proceeding to get the Earnest Money Deposit. The clerk of court will then enter an order determining how the funds should be disbursed after a hearing.
This article is intended solely for the benefit of NC REALTORS® members, who may reproduce and distribute it to other NC REALTORS® members and their clients, provided it is reproduced in its entirety without any change to its format or content, including disclaimer and copyright notice, and provided that any such reproduction is not intended for monetary gain. Any unauthorized reproduction, use or distribution is prohibited.