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September 12, 2017 • Stay Connected!
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QUESTION:   I am the Listing Broker and another firm represents the Buyers. Buyer's Earnest Money Deposit is being held in the buyer firm's Trust Account. All buyer contingencies are waived or satisfied but the parties are still within ten days following mutual acceptance. Listing Broker receives written Notice Form 90 stating that the Buyers are terminating using the Information Verification clause in Form 21 (W) which allows Buyer's 10 days to verify any and all information provided by the Seller or the Listing Firm and provides Buyer's the right to terminate based on "Materially Inaccurate Information." What is considered the definition of "Materially Inaccurate Information"? Who decides what is "Material"?
 
What proof does the Buyer or Selling Broker have to submit supporting any material inaccurate information they may have been provided? At what point does the agreement officially terminate? At what point may the Seller place her home back on the market in order NOT to incur any further financial damage while the Earnest Money dispute is being resolved? Since the Earnest Money is being held in the Selling Firm's Trust Account rather than held with the Closing Agent, at what point can the Selling Firm just refund EM to the Buyers while the determination is made on when the PSA terminated and if the Buyer's had legal cause to terminate?



ANSWER:  When buyer terminated the agreement based on the Information Verification Provision, buyer had the unilateral right to terminate on that basis, based on the language of Form 21. Accordingly, the termination notice was effective when delivered to seller. Seller may now put the property back on the market and find a new buyer.
 
Since the EM is held by buyer's firm, the firm could choose to release the EM to buyer. It is not clear whether the firm will do that or not. If the firm releases funds to the buyer that seller claims the right to take, the firm runs the risk of legal action from seller. If the firm chooses instead to interplead the funds into the registry of the court, the court will then decide who between buyer and seller is entitled to ownership of the funds.
 
The court will ultimately have to determine if buyer was entitled to terminate based on a "material inaccuracy" in seller's representations. "Material" is a term that can only be defined in the context of the particular transaction. For example, a 100 square foot discrepancy would not likely be material if the home was 7500 square feet. However, if the home is 500 square feet, the 100 square foot discrepancy would likely be material. Whether the inaccurate representation(s) by seller, claimed/relied upon by buyer, are material is a question that ultimately, only the reviewing court can answer with authority.
 
If the parties cannot resolve their differences and give the buyer's firm clear, written instructions regarding release of the EM, it is likely that litigation will result. In litigation, the prevailing party is likely to be awarded fees and costs in addition to the EM, but the court will also order that the buyer's firm is to first be made whole for its expenditure of fees and costs incurred by starting the interpleader action. Buyer's firm will be made whole from the EM before any of the EM is distributed to the prevailing party. The prevailing party will then, likely, be awarded a judgment against the other party for the total sum of the EM plus reasonable attorney fees and costs. The only real difficulty at this point, is that it is impossible to determine, in advance, with certainty, who the court will find to be the prevailing party. That means one party stands to lose a great deal and the other party, if recovery is made, will recover many months (or longer) from now.
 
Broker is not licensed to advise her client as to how to proceed. Broker should advise her client, in writing, to seek legal counsel.

 

The Legal Hotline Lawyer does not represent Washington REALTORS or its members. To browse through our database of past Q & A's, visit www.warealtor.org. Attorney Annie Fitzsimmons writes the Legal Hotline Question and Answer of the Week. Please submit questions to legalhotline@warealtor.org . Please tell us your NRDS number when you e-mail the Hotline with your question.



Thank you, Corporate Sponsors!

  


  

Missed the Hirst Decision Conference Call?
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On Thursday, September 7, the Senate voted to pass a three-month extension of the National Flood Insurance Program (NFIP). The House of Representatives passed the legislation on Friday, September 8, 2017, and the President signed the bill into law later that day. Thank you to all of our members who took action and helped us achieve our participation goal. REALTORS® make a difference!  [Read more...
 

 
 
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Primary Mortgage Rates Survey
(updated every Thursday)  Source:  Freddie Mac
 
 September 7, 2017  30-yr FRM  15-Yr FRM  5/1-Yr ARM
 Average Rates  3.78%  3.08%  3.15%
 Fees & Points  0.5
 0.5
 0.4
 Margin  N/A  N/A  2.74



 August 31, 2017  30-yr FRM  15-Yr FRM  5/1-Yr ARM
 Average Rates  3.82%  3.12%  3.14%
 Fees & Points  0.5
 0.5
 0.5
 Margin  N/A  N/A  2.74



 August 24, 2017  30-yr FRM  15-Yr FRM  5/1-Yr ARM
 Average Rates  3.86%  3.16%  3.17%
 Fees & Points  0.5
 0.5
 0.5
 Margin  N/A  N/A  2.74




 
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