Q: I am the listing agent on property that was scheduled to go to settlement early in June. The lender’s money was wired to the settlement company, but the buyer did not show, so the money was returned to the mortgage company. Am I entitled to keep the $3,000 deposit because the buyer breached the contract by not showing up at settlement? If so, how to go about getting it?
A: Did the buyer give any explanation as to why he/she did not show up at closing? Has the buyer been given a demand notice to go to settlement (after the first settlement where there was a no-show)? Are there any defenses that the buyer could raise to try to demonstrate that he/she was not in default? (For example, did the seller promised to make certain repairs but did not do so?) You have to be absolutely sure that the buyer was in default.
The deposit must be held in escrow until either there is a signed release by both buyer/seller or a court issues an order directing how the deposit should be distributed. Bottom line: when the earnest money deposit is held in escrow, the escrow agent can not unilaterally release it.
Another consideration: why was the deposit so low? Many buyers are willing to walk away from $3000, but not a lot more. I suggest you consider getting higher deposits.
Q: My originating office is in VA. I also have a DC firm license. Is my firm required to have a separate escrow account in a DC bank? If I send all earnest money deposits to the title company, is my firm still required to have an escrow account?
A: Section 2702 of the DC Municipal Regulations, specifically states that “in the absence of written instructions to the contrary signed by all parties to a real estate transaction, moneys...” received as the good faith earnest money deposit shall within 7 calendar days “be deposited in a financial institution LOCATED with the District of Columbia...”
I know that some brokers take the position that (for example) if they deposit the earnest money deposit into a PNC bank in Virginia or Maryland, since PNC has a branch office in DC, that complies with the regulations. I do not know if there have been any court cases on this issue, but to be on the safe side, I would make sure that you open an escrow account here in DC. However, if you give the deposit check to the settlement attorney or title company, and the contract specifically states in writing that the attorney or title company will hold the deposit, you are not the escrow agent and do not have to have such an escrow account.
Q: A buyer defaulted on a contract by not closing on August 1. This buyer told me that the condo documents would be reviewed in five days, but she had them for a month. The buyer has talked about dealing with an attorney so she would not to have to give up her $4,000 deposit. What are the escrow laws in DC and what does a broker need to do to release these funds?
A: I only practice law in DC and Maryland, but I am fairly sure that the escrow laws are the same throughout the country. These laws are quite simple: the moneys you hold as the earnest money deposit (EMD) must stay in escrow until one of two things occur: (a) the buyer and seller and all agents sign a release form directing how the EMD is to be distributed, or (b) a court order from the DC Superior Court is issued directing the disposition of the escrowed funds. Under no circumstances should the escrow agent (typically the buyer’s broker) release the funds to anyone without having in their possession a document from either (a) or (b) above.
Q: My firm is the buyer’s agent for two separate clients involving the same issue of earnest deposit. One has put down $3,000 and the other $5,000. The sellers in both cases have not been reachable by phone or letter for “several months,” and the listing agent is unresponsive as well. Can Section 42-1704(a)(1), which states the earnest money can be “retained until consummation or termination” of a contract, be applied in these cases? Can the potential buyers or the agent terminate these contracts? If so, what are my rights and privileges and how can/must this money be distributed if the contracts are terminated?
A: Do your clients want to buy the respective properties? If so, you should arrange for settlement and if the seller does not show up (and assuming that your clients have the cash/loan to settle) the buyers can sue the sellers for specific performance and get attorneys fees if they prevail (assuming that you use the Regional Sales Contract).
If they don’t want to buy, you should send the listing agents the form release by certified mail, regular mail, and by fax. The release should state that the contract is terminated, and that the deposit is to be returned to the buyer. You may also hint to the listing agent that he must be responsive or someone may bring him up to the real estate commission (that’s your call). If the seller does not sign, you can consider the contract voided by the seller.
The money in escrow cannot be released until either the seller agrees or a court orders its release. The Regional Sales Contract does provide that the prevailing party will be awarded attorneys fees.