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Brokers: Make sure to check trust account by Sept. 1

calculator and pen

By Peg Ritenour, Vice President of Legal Services/Administration

Have you had a contract fail in the last few years where the parties would not sign a release because they both claimed the earnest money? If it’s been more than two years, you may be able to disburse those funds to the buyer or turn the money over to the Division of Unclaimed Funds.

In 2009, Ohio license law was amended to allow brokers to include a provision in their purchase contract that permits such disputed earnest money to be returned to the buyer after two years from the date the earnest money was deposited in the broker’s trust account. Many brokers and most local boards/ associations have included such language in their form contracts. However, including such a provision is optional and some broker’s contract do not contain such language.

If this provision is included in a contract, though, brokers must ensure that the earnest money is timely returned to the buyer after the two year period. While brokers should make this disbursement as soon as the two year period has run, the law requires that the earnest money be returned no later than September 1 of that calendar year. Failing to do so could result in the broker being disciplined by the Ohio Real Estate Commission.

A broker’s obligation to return earnest money by September 1 is triggered if all of the following facts exist:

  1. A purchase contract was entered into, but the transaction did not close;
  2. The parties could not agree on who would receive the earnest money;
  3. The broker has not received notice that legal action has been filed;
  4. The purchase contract contained language that provides that the earnest money will be returned to the purchaser after two years if the parties have failed to provide the broker with written instructions specifying how the earnest money is to be disbursed or notice that legal action has been filed; and
  5. It has been over two years from the date the earnest money was deposited in the brokerage trust account.

If all of the above events have occurred, a broker has a duty to remit the earnest money to the buyer as soon as possible, but no later than September 1 of the year the disbursal should have been made. Notice to the seller that such the funds are being issued to the buyer is not required to be given. Before disbursing any disputed earnest money to the purchaser, though, it is critical that brokers make sure that the purchase contract contained the language described above.

If the purchase contract does not contain the above provision, then under the license law, a broker cannot disburse the earnest money to either the purchaser or seller until the parties provide written instructions or a release that specifies how the broker is to disburse the money or a court issues an order directing its disbursal.

In some instances, earnest money held for more than two years may be considered to be “unclaimed” and the broker can turn the money over to the Ohio Division of Unclaimed Funds. Before doing so, however, the broker is required to give the buyers and sellers a “due diligence notice” (Form OUF-8 Notice of Unclaimed Funds). Here are some of the key facts you need to know about providing this notice:

  • If the funds are less than $1,000, the notice can be sent by first class mail. If the funds are $1,000 or more, the notice must be sent by certified mail, return receipt requested. No notice is required for funds under $50, however, these funds are still reportable as unclaimed funds.
  • The notice must include a self-addressed, stamped, return envelope.
  • Form OUF-8 provides notice to the parties that they have 30 days to show an interest in the funds by responding to the broker or the funds will be transferred to the Division of Unclaimed Funds.
  • If no response to the notice is received from the parties or if the notice is returned for a bad address, the broker can remit the funds to the Division.
  • If either buyer or seller responds to the notice claiming the earnest money, the funds are not considered unclaimed and cannot be turned over to the Division.

Brokers are also reminded that the unclaimed funds law requires all brokerages to file an annual report with the Division of Unclaimed Funds (Form OUF-1 Unclaimed Funds Reporting Form). The annual report is due November 1 of each year even if there are no unclaimed funds to report.

If a brokerage is not holding any unclaimed funds or if all owners respond to the OUF-8 Notice, the brokerage must file a Negative (None) Report using OUF-1 Reporting Form. The annual report, due November 1, 2016 is for funds dormant as of June 30, 2016.

Additional information regarding the unclaimed funds regulations, reporting requirements and reporting forms can be obtained from the Division of Unclaimed Funds website at www.com.ohio.gov/unfd.

Tags: legal