More earnest money problems!
On August 22, 2016
By Peg Ritenour, OAR Vice President of Legal Services/Administration
Insights on some of the recent questions Ohio brokers have posed to the OAR Legal Hotline pertaining to earnest money issues.
Q: In our area the buyer’s agent always provides the listing agent with a copy of the buyer’s earnest money check as proof of receipt of these funds. Recently another broker refused to provide me with a copy of the buyer’s check, citing the confidentiality of the buyer’s account information. Isn’t the buyer’s agent required to give the listing agent a copy of the earnest money check?
A: No. While that may be a common practice in your area, it is not a license law requirement to provide a copy of the earnest money check to the listing agent. Doing so would only be necessary if the terms of the contract required this. Absent such a contractual term, the buyer agent’s refusal maybe valid given the increase in identity theft and the agent’s fiduciary duties to the buyer. To comply with the agent’s duty of confidentiality and to protect the buyer’s account information, a copy of the earnest money check should only be provided to the listing agent if the buyer consents to this. It is also suggested that confidential account information including the account number and check number be redacted from the copy of that check.
Q: I represent a buyer who is in contract to purchase a property listed with another broker. Under the terms of the contract the buyer is required to make a $1,000 earnest money deposit upon acceptance. The contract was signed a week ago and although I’ve requested the earnest money from the buyer several times, he has not brought me a check. What should I do?
A: The Division of Real Estate and Professional Licensing has taken the position that if the earnest money is not received in a timely manner that the listing agent/seller must be notified of this fact. I suggest that you send the buyer an email setting a date by which you must receive the earnest money and stating that if you do not receive it by that date you will need to notify the listing agent of this fact. Since it has already been a week since the contract was signed, I would suggest that deadline be no more than two days. You should also document your communications with the buyer regarding the earnest money so that you can establish that you have made a good faith effort to collect these funds per the terms of the contract.
Q: One of my agents recently wrote a contract for a buyer that included a $2,000 earnest money deposit. Now the contract is falling apart over an inspection issue and the seller is demanding the earnest money. I just found out that my agent never collected the earnest money although she signed the section in the purchase contract acknowledging receipt of these funds. I have demanded the earnest money from the buyer but he won’t return my calls or respond to my emails or text messages. Could the agent get in trouble for indicating on the purchase contract that she had the $2,000 when she didn’t? What should I do?
A: Your agent could absolutely be in trouble. Falsely acknowledging receipt of funds she doesn’t have could be found by the Ohio Real Estate Commission to be a knowing misrepresentation and grounds for disciplinary action. As explained above, you need to notify the listing broker that you do not have the earnest money in your trust account.
Q: A buyer gave me an earnest money check in conjunction with an offer to purchase. The offer was accepted and I deposited the check into the brokerage trust account. However I have just been notified by our bank that it bounced. Upon contacting the buyer, he explained that there had been a delay with a wire transfer and for my bank to try again. Again the check was returned for insufficient funds. Should I notify the listing agent that the check hasn’t cleared?
A: Yes. The Division of Real Estate and Professional Licensing has also taken the position that if the earnest money check is returned for insufficient funds that the listing agent/seller must be made aware of this fact. Moreover, you should let your buyer know that you will be notifying the listing agent that you do not have the funds required by the contract.
Legal articles provided in the OAR Daily Buzz are intended to provide broad, general information about the law and is not intended to be legal advice. Before applying this information to a specific legal problem, readers are urged to seek advice from an attorney.