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Legally speaking: Returning earnest money someone else fronted

By Peg Ritenour, OAR Vice President of Legal Services/Administration

The OAR Legal Assistance Hotline receives an array of real estate-related legal questions — including license law issues, disclosure, contract law, ethics and commission problems, among others. In an effort to help you work within the law, our “Legally Speaking” series spotlights some of the timely questions that are being asked by REALTORS. This one involves a series of questions pertaining to properly returning earnest money… 

Q:  I represent a buyer who entered into a purchase contract that is not going to close due to an inspection issue. The sellers have signed a mutual release agreeing that the earnest money be returned to the buyer. The buyer’s mother provided the check for the earnest money for the buyer. When my broker writes the check to return the earnest money should the check be made payable to the buyer or his mother?

A: Even though the mother provided the funds for her son, the mother was not a party to the transaction. Therefore, according to the Ohio Division of Real Estate and Professional Licensing, the check should be made payable to the purchaser, not his mother.

Q: What if the buyer says its OK to make the check payable to his mother?

A:  In that case as long as the buyer has provided you with instructions to make the check payable to his mother, the check can be made out to her. Of course such instructions need to be obtained in writing from the buyer and a copy retained  for your files to document why the earnest money wasn’t returned to the buyer.

Q: What if the purchaser is an LLC or corporation and one of the members of the LLC or an officer of the corporation wrote a personal check for the earnest money? If the earnest money is later returned, should the check be made payable to the LLC or corporation since it was the actual purchaser under the contract?

A: Yes, the Division’s position is that the check should be made payable to the purchaser, which in this case would be the entity identified on the contract as purchasing the property, not the individual who wrote the check on behalf of that purchaser.

Tags: legal, Legally Speaking