Instructions for resolving earnest money disputes by the
Rule 1260-2-.09 Deposits and Earnest Money:
1.
Each broker
shall maintain a separate escrow account for the purpose of holding any funds
which may be received in his fiduciary capacity as deposits, earnest money, or
the like.
2.
An affiliate
broker shall pay over to the broker with whom he is under contract all deposits
and earnest money immediately upon receipt.
3.
Brokers are
responsible at all times for deposits and earnest money accepted by them or
their affiliate brokers.
4.
Where a
contract authorizes a broker to place funds in an escrow or trustee account,
the broker shall clearly specify in the contract:
(a) the terms and
conditions for disbursement of such funds; and
(b) the name of the
person or entity who will actually hold such funds.
5. A broker may properly disburse funds from an
escrow or trustee account:
(a) upon a reasonable interpretation of the contract
which authorizes him to hold such funds;
(b) upon securing a written agreement which is signed
by all parties having an interest in such funds, and is separate from the
contract which authorizes him to hold such funds;
(c) at the closing of the transaction;
(d) upon the rejection of an offer to purchase, sell,
rent, lease, exchange, or option real estate;
(e) upon the withdrawal of an offer not yet accepted
to purchase, sell, rent, lease, exchange or option real estate;
(f) upon filing an interpleader action in a court of competent
jurisdiction; or
(g) upon the order of a
court of competent jurisdiction.
6.
Funds in
escrow or trustee accounts shall be disbursed or interpled in a proper manner
without unreasonable delay and not longer than thirty (30) days after receipt
of a written demand from any party to the transaction. A broker may continue to hold such funds beyond
thirty days only if the broker obtains an agreement signed by all parties to
the transaction permitting the broker to
continue to hold such funds in escrow and such agreement:
(a) Clearly provides that the broker may interplead
the funds at any time regardless of any other term contained in the agreement;
and
(b) Contains a definite termination date upon which
the broker shall disburse or interplead the funds.
7.
No postdated
check shall be accepted for payment of a deposit or earnest money, unless
otherwise provided in the offer.
8.
Earnest
money shall be deposited into an escrow or trustee account promptly upon
acceptance of the offer, unless the offer contains a statement such as “Earnest
money to be deposited by . . .” to
indicate how such funds will be handled pending closing of the contract.
( TREC Policy
Note: “Promptly” means within seventy–two { 72 } hours or three
{ 3 }
Banking Days of acceptance of the offer. )
9.
Interest
bearing escrow accounts are neither required nor prohibited. If used, however,
the following guidelines shall be observed:
(a) The licensee shall disclose to the payor that his
funds will be placed in an interest bearing escrow account;
(b) As a depositor of the funds, the licensee does
not own the funds or any interest earned thereon until properly disbursed to
the licensee;
(c) The licensee and payor shall execute a written
agreement indicating the manner of disposition of interest earned; and
(d) The licensee shall keep a detailed and accurate
accounting of the precise sum of the interest earned for each separate deposit.
The
1. Disburse the funds pursuant to a reasonable interpretation of the contract.
A broker can simply read the contract, and if the language is clear, disburse the funds to the correct party.
2. Negotiate the disposition of the money.
If the broker is not comfortable disbursing the funds under an interpretation of the contract, then it is acceptable to negotiate the disposition of the money through written releases signed by the parties. It is important to note however that a broker cannot force any party to sign a release in order to receive the earnest money. The agreement to sign a release is the decision of the buyer or seller and can not be an absolute condition of releasing earnest money that rightfully belongs to one of the parties.
3. File an Interpleader Action.
If the contract or the facts surrounding the contract are not clear, and if the parties can not agree on the disposition of the funds, then the obvious alternative is to file an Interpleader Action to ask a court of competent jurisdiction to determine the correct owner of the funds. In this instance the broker pays the funds into
Court and waives any claim to the funds. The court will then decide the proper party to receive the earnest money. ( Instructions and forms are on the KAAR Website)
Most importantly do not wait until you receive a complaint to resolve an earnest money dispute. You are expected to know what action to take to resolve earnest money disputes and an unreasonable delay in resolving a dispute could result in disciplinary action against your license.
Remember, funds in escrow or trustee accounts must be disbursed or interpled in a
proper manner without unreasonable delay within thirty (30) days of a written
demand from any party to the transaction.
The most important duty you hold as a licensee is the duty to properly handle the funds of others.
If you have questions regarding how to resolve a dispute there check with one of the following resources: your private attorney, the Tennessee Real Estate Commission or the Knoxville Area Association of REALTORS®.
Prompt action in resolving earnest money disputes can save all parties a lot of paperwork and many headaches later.
INTERPLEADER DEFINITION: A legal proceeding whereby an innocent third party
(stakeholder), such as an escrow agent or broker, can deposit with the court
property or money that he or she holds and that is subject to adverse claims so
that the court can distribute it to the rightful claimant. The distribution of
deposit or earnest money held in escrow is often a problem when the buyer and
seller are in dispute over the purchase contract. If the escrow agent cannot
get the parties to agree an the disposition of the
deposit money, the recourse is to file an interpleader action asking the court
to accept the money and distribute it to the rightful claimant. When the broker is holding the earnest money,
the broker may originate the interpleader.