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May 23, 2017 • Stay Connected!
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QUESTION:  As a Selling Agent, I often find Listing Agents pressuring my clients to "release the earnest money as non-refundable" at mutual. The latest version was a Listing Agent who pressured my clients to sign a form stating the earnest money was converted to a non-refundable deposit released to seller. My DB has expressed lots of doom and gloom on this issue and says it's a mine field. What is your opinion? Assume buyer has no contingencies.



ANSWER: If buyer has no contingencies, then the earnest money is already non-refundable. If buyer fails to close and buyer has no contingencies excusing buyer's performance, then buyer's failure to close constitutes a breach of contract. If buyer breaches the contract, then seller is entitled to the remedies specified on the face of Form 21.
 
Broker's DB shows great wisdom in expressing doom and gloom over a seller demanding that earnest money be released to seller in advance of closing. In every purchase agreement, seller has an obligation to provide buyer with marketable title in exchange for buyer's full performance of the purchase agreement. What if seller has taken possession of buyer's earnest money and then seller cannot provide marketable title? This happens far more often than broker's expect. If seller dies or becomes incapacitated prior to closing, it is very likely that seller's estate and/or caregivers will be unable to take the steps necessary, prior to the closing date, to create marketable title. There are other reasons that title can be, unexpectedly, unmarketable at closing. For example, a lender may fail to submit a timely pay off, the title company may discover a needed quit claim deed from a long-ago former spouse, an un-resolvable, neighbor encroachment may be discovered and countless other problems can arise.
 
While it is understandable that sellers do not want to fight with a buyer over EM to which seller clearly feels entitled, seller's chance of recovering that EM when it is held in escrow is FAR BETTER than buyer's chance of recovering EM that was released to a seller, if seller is unable to provide marketable title.
 
The Hotline lawyer does not recommend the use of nonrefundable earnest money or deposits of any sort unless seller is represented by legal counsel and seller's lawyer will hold the nonrefundable money in the lawyer's trust account until seller fully performs the terms of the purchase agreement.
 
 

 

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.



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QUESTION from 6/3/2016:   DOL regulations require every firm to maintain a log of all contracts handled by brokers licensed to the firm. We were told that this log must include an entry for every purchase agreement, listing agreement, lease agreement and a separate entry for every addendum to any of those contracts that is prepared after mutual acceptance. Is that true? What is the appropriate format for this log?
 
ANSWER:  WAC 308-124C-105(2)(a) says: "The designated broker is required to keep the following on behalf of the firm: ... An accurate, up-to-date log of all agreements or contracts for brokerages services submitted by the firm's affiliated licensees." Neither the WACS (Washington Administrative Code) nor the Department of Licensing require that the log take a particular format. The purpose of the log is to allow an easy, comprehensive review of the transactions and real estate brokerage services provided by a firm. The log can be organized into the time period that works for the firm and can include information relevant to the firm. The minimum information that DOL expects to see on a firm's log with respect to an "agreement or contract" includes: identification of the client/property; identification of the broker; date of service; service provided; and if necessary, identification of the managing broker who conducted a review. The log can be electronic or manual. Some firms have an electronic storage system that automatically generates a log when documents are submitted. Others have a hand written log maintained by office personnel. Some logs include information relevant to the specific firm regarding commissions, neighborhoods, marketing, closing, escrow or other details. All of that is fine but not necessary. For DOL's purposes, a DOL auditor should be able to walk into the office, ask for a copy of the firm's log and see a comprehensive list of "all agreements or contracts for brokerage services." At a minimum, the list must include an entry for all purchase and sale agreements, listing agreements, property management agreements, lease agreements and agreements for the provision of broker price opinions. DOL reports that firms often fail to include BPOs in the log but because BPOs are "real estate brokerage services," BPOs must be included in the firm's log. The log does not need to include a separate entry for actions taken within each transaction. For example, if the log references that Bill Smith prepared a purchase agreement on June 1 for the property at 123 Main Street, there is no requirement for the log to include a separate entry, 10 days later, that Bill Smith prepared an addendum regarding buyer's inspection or an addendum to extend the closing date, etc. The log must simply reference the existence of the "contract or agreement." A separate WAC requires that every firm maintain a transaction file on every transaction. That transaction file is required to contain all addenda (and other documentation) related to the transaction but the Firm's log is not required to reference each of those addenda. In some respects, the Firm's log is the tool that allows a DOL auditor to identify the contracts and agreements handled by the Firm. Using the log as an index, the auditor can then request specific transaction files for more detailed review.

 
 
(You will need your NRDS# & password to access the Legal Hotline.)  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 e-mail the Hotline with your question.