10 Questions AND Answers TO HELP you Navigate THIS Tricky Territory

​{1} When the broker is holding the earnest money, what are the broker’s remedies when there is a dispute over earnest money?
The broker holding earnest money basically has three options when there is an earnest money dispute. First, the broker can encourage the parties to resolve the dispute and give them a reasonable amount of time to do so. This is generally in the range of one to two months. If both parties agree in writing on some compromise within that time frame that resolves the dispute, the broker can disburse based on that written agreement. Usually, a termination and release agreement is signed to memorialize the agreement regarding earnest money. Second, the broker can disburse earnest money after making a reasonable interpretation of the contract. In this instance, the broker has to first send out what is referred to as a “10-day letter,” stating the proposed disbursement and giving the parties 10 days from the date of the letter to object. Third, the broker can interplead the funds into the Superior Court. Technically, this means the broker files a lawsuit against both parties and as part of this, the broker deposits the earnest money into the registry of the applicable Superior Court and asks the court to decide who should get it.

{2} If the seller objects to the broker disbursing the earnest money to the buyer, but the objection is not valid, is the broker allowed to interplead the funds into court?
The answer to this question is no. The dispute has to be a bona fide dispute where the broker is genuinely uncertain as to who should get the earnest money. So, for example, let’s say that the buyer terminates the contract during the due diligence period. The seller gets mad and will not sign a termination and release agreement. The seller even demands the earnest money to compensate them for the house being off the market. In this situation, there may be a dispute, but it is not a legitimate dispute that would prohibit the broker from disbursing the earnest money to the buyer. It is clear that the buyer is entitled to get back their earnest money because the contract was properly terminated during the due diligence period. Even though the seller is upset, the broker should still go ahead and make a reasonable interpretation of the contract to disburse to the buyer, send out a 10-day letter and then disburse accordingly. Judges expect holders of earnest money to make reasonable interpretations of the contract and not to simply pass the buck to the nearest Superior Court judge.

{3} When there is a dispute, can the broker just hold onto the money and not disburse until the parties resolve the dispute?
The answer to this question is no. The broker can hold onto the funds for a reasonable period of time. In truth, the passage of time often helps resolve earnest money disputes. A seller who was angry with a buyer for terminating the contract, or not closing, often sells the property in the meantime to someone else and their anger dissipates. When the parties also face the prospect of going to court to defend themselves in an interpleader lawsuit, it tends to make all parties think twice. If the holder holds onto earnest money for months on end, the holder risks a lawsuit against itself in which it is alleged that the holder has effectively converted the funds to the holder’s own use. While there is not an appellate court decision on the validity of such a claim, it can be a hassle for the holder to defend.

{4} Can the broker simply give the funds to their own client?
The answer to this question is also a big no. In holding earnest money, the holder agrees to disburse the funds only upon a reasonable interpretation of the contract. It is fundamentally unreasonable and an act of bad faith to simply give the money back to the holder’s client. While the holder is indemnified against claims from all parties in a real estate transaction, it is unclear whether such an indemnity would apply to a bad faith, unreasonable disbursement.

{5} Does an attorney holding earnest money owe the same duties as a broker holding earnest money?
The answer to this question is yes. GAR Form F510, Closing Attorney Acting as Holder of Earnest Money Exhibit, provides as follows on this point: “Notwithstanding any provision to the contrary contained in the Agreement, Closing Attorney acting as Holder shall have all of the pre-printed rights and duties of Holder set forth in the GAR Purchase and Sale Agreement …”.

{6} Does the holder have any legal liability if the buyer does not pay the earnest money and the holder does not timely notify the parties?
The answer to this question is maybe. Holders sometimes do not realize that they have not received the earnest money and, therefore, forget to notify the parties that it has not been received. Can a claim for the earnest money be asserted against the holder for this error? The answer is clearly yes. However, in defending against such a claim, the holder can argue that while he or she failed to timely notify all parties that the earnest money was not received, had such a notification been given, there is still no assurance that the earnest money would ever have been paid. About the only thing that can be clearly proven is that had the holder notified the seller when the earnest money was not timely received, the seller would have had more time to demand the earnest money be paid and terminate the contract if this did not occur. As result, most sellers in this situation choose to sue the buyer who failed to deposit the earnest money, as per the contract.

{7} Can the holder of the earnest money decide to give each party half?
The answer to this question is no. There is nothing in the earnest money section of the GAR Purchase and Sale Agreement that gives the holder the right or the ability to divide the earnest money between the parties. Instead, the earnest money section simply gives the holder the right to decide who is entitled to the earnest money. In other words, it either all goes to the buyer, or all goes to the seller. Dividing up the earnest money would likely be something a Superior Court judge might be able to do in exercising its equitable powers. But no such authority is vested with the holder.

{8} Why does the threat of filing an interpleader action cause so many buyers and sellers to settle?
When buyers and sellers truly understand what an interpleader is, they tend to settle whatever dispute they may be having with each other. Normally, I recommend that the holder send a 10-day letter (as discussed in question #1) to both parties stating that since the dispute cannot be resolved, the holder will move forward to file an interpleader lawsuit within a week or two thereafter. When most buyers and sellers consider the costs and risks involved with an interpleader lawsuit, they often agree to simply split the earnest money. The 10-day letter that is sent to the parties advising them that the earnest money will be interpleaded should encourage the parties to try to come to some compromise of the dispute while the holder’s attorney begins work drafting the lawsuit.

{9} Why is it that more closing attorneys are being asked to hold earnest money?
There is a trend toward having more closing attorneys hold the earnest money. This is probably for two reasons. First, it avoids the uncomfortable situation of the broker having to sue its own client if the broker needs to interplead the funds into court. Second, it saves the broker from having to use staff time to track earnest money deposits and decide who gets the earnest money in the event of a dispute. This can result in a significant savings to the broker. Most closing attorneys are willing to hold the earnest money as an accommodation to their clients.

{10} Are there any downsides to the closing attorney holding earnest money?
The one major downside to the closing attorney holding earnest money is if the transaction is for all cash. In such situations, the closing attorney represents the buyer. In the event of a dispute over the earnest money in that situation, “the Closing Attorney shall not disburse based upon a reasonable interpretation of the Agreement”. Instead, the closing attorney “is required to interplead the funds into a court of competent jurisdiction”. This provision was included to avoid the situation in which the closing attorney might have to take a position that is adverse to their client’s wishes since this would violate the lawyer’s ethical duties. Therefore, this might be a situation in which it is better to have a broker hold the earnest money rather than the closing attorney. As long as buyers put up earnest money, there will be earnest money disputes. Hopefully, this article provides guidance for REALTORS® on the most commonly asked questions regarding the resolution of such disputes.
​
Article written by Seth Weissman GAR Legal Counsel
Link to article Resolving Earnest Money Disputes

If a Real Estate Firm or Licensee hires someone to conduct real estate brokerage activities, then he/she must be Licensed by the Georgia Real Estate Commission.
 Whether it is marketing residential properties, managing rental properties, selling land, or procuring prospective tenants for an office building, if a person performs real estate activities for a Licensee in anticipation of getting paid for that work, he/she must have an active real estate license. Calling the real estate activities “consulting” work does not change the fact that it is real estate brokerage activities and requires a License.
Review the following summary of the 43-40-1 Definition of Broker in the Real Estate License Law.
"Broker" means any person who, for another, and who, for a fee, commission, or any other valuable consideration or with the intent or expectation of receiving the same from another:

• Negotiates or assists in procuring prospects for the listing, sale, purchase, exchange, renting, lease, or option for any real estate or its improvements;
• Acts as a referral agent to secure prospects for any real estate;
• Collects rent or other trust funds;
• Is employed by or on behalf of the owner(s) of lots, timeshares, or other parcels of real estate at a salary, fee, commission, or other valuable consideration to sell such real estate or part thereof;
• Charges a fee, other than an advertising fee, to promote the sale of real estate either through its listing in a publication or for referral to Brokers, or both;
• Auctions real estate;
• Deals in options to buy/sell real estate;
• Performs property management or community association management services;
• Provides consulting services to any party to a real estate transaction to negotiate or procure prospects for the listing, sale, purchase, exchange, renting, lease, or option for any real estate or the improvements thereon.
• Advertises him/herself as engaged or providing any such services.

Thus, by definition, an individual is not permitted to receive consulting fees as a source of income for doing any of the above activities unless he/she has a real estate License.
Article from GREC RENews November 2024 Edition
Full article here GREC November 2024 Newsletter
​

Georgia's property management laws equip landlords and property managers with the necessary knowledge to provide safe housing. However, these laws can be complex, especially when dealing with properties in multiple states. This information is essential for anyone managing property in Georgia to understand their obligations. It references the Official Code of Georgia's statutes as of the 2019 Regular Session.

• Landlords can charge non-refundable application fees and request information about potential tenants' employment, credit, and criminal records (44-7-1).
• It is unlawful to reject a tenant based on race, religion, color, sex, disability, family status, or national origin (8-3-203).
• Security deposits have no state-level limit and must be held in an escrow account (if the property is professionally managed) or a surety bond posted in the same county (44-7-30).
• Landlords have 30 days to return the security deposit after a tenant's departure and must provide a list of damages within three business days (44-7-30).
• Lease termination provisions must be agreed upon by both tenant and landlord. Service members and victims of domestic violence can terminate leases with 30 days’ written notice under specific conditions (44-7-22, 44-7-23).
• Landlords can increase rent per a valid lease agreement or with a 60-day notice for tenants-at-will. Late fees should be clarified in the lease agreement (44-7-19).
• Landlords must provide written notice of the names and addresses of the property owner, authorized agent and property manager upon commencement of occupancy (44-7-3).
• Landlords are required to maintain a safe, habitable property, provide utilities, and are liable for damages due to neglect (44-7-14).
• Landlords and property managers are obligated to keep rental properties in good condition, respond to maintenance requests in a reasonable time frame, and cannot suspend utilities while the property is occupied (44-7-13, 44-7-14.1).

 
For more information on Georgia laws for Tenants, Landlords & Property Managers:
Georgia Landlord Tenant Handbook

What happens if the earnest money is paid on the buyer’s behalf by someone other than the buyer and the contract terminates?
When earnest money is paid by a third party, it should be managed and disbursed by the holder as if the buyer had deposited it directly. If the buyer legally terminates the contract, the earnest money will be returned to the buyer, not the third party. Should the buyer default on the contract, the earnest money will be paid to the seller as liquidated damages. Any claims the third party has regarding the earnest money should be directed at the buyer and handled like a loan between the buyer and the third party. This should not play any role in the holder’s decision when disbursing the earnest money.
The main purpose of earnest money is to place financial risk on the buyer if they do not fulfill the contract. If a third party who pays the earnest money were to gain special rights to those funds, it would defeat the purpose of earnest money.
To avoid any risk for the third party to make claim to the earnest money, the holder should try to get the third party to sign the GAR Form (F525) entitled Acknowledgement of Person Contributing Earnest Money on Behalf of Buyer. The acknowledgement makes it clear that the third party shall have no further rights to claim the earnest money from Holder and the Holder shall hold, handle and disburse the funds as if it was earnest money paid solely by Buyer and shall only deal the Buyer. It clarifies if the earnest money is to be returned, it will be returned to Buyer and not the party who paid the earnest money.

Federal fair housing law does not explicitly prohibit criminal background screening. However, the U.S. Department of Housing and Urban Development (HUD) released guidance and a memo about how the Fair Housing Act applies to housing policies with regard to criminal background checks. HUD recognizes the racial and ethnic disparities in the criminal legal system, including disproportionate and unequal rates of arrests and convictions, and harsher sentencing of Black and Latinx individuals in particular. The result of this disparity is disproportionate harm to members of these protected classes.
HUD’s 2022 Memo regarding its 2016 Guidance on this topic recommends private housing providers not use criminal history to screen tenants for housing. Criminal history is not a good predictor of housing success.
Most housing providers are not required by law to exclude persons with criminal histories as tenants and can rely instead on other screening criteria that more closely relate to whether an applicant or resident would be a good tenant, such as: ability to pay rent, prior rental history, and personal references.
If conducting a criminal record screening, HUD has issued guidance on applying Fair Housing Act standards to the use of criminal records screening in housing related transactions.
This guidance prohibits landlords from:
• Denying housing based on arrest records.
• Placing blanket bans on renting to anyone with a criminal history. Blanket bans are bans that apply to or affect all or the majority of a given class of people.
• Conducting background checks inconsistently, performing them on some and not others based on stereotypes or fear.
Further, a landlord must:
• Consider individuals on a case-by-case basis and evaluate the nature and severity of the crime and consider the length of time that has passed since that crime was committed.
• Make a determination based on facts and evidence, and not a perceived threat.
A person can be denied based on their criminal record, legally, if their recent criminal record makes them dangerous and a risk to other tenants or neighbors. The denial must be based on reliable evidence and not be hypothetical or speculative. If challenged as a fair housing violation, a housing provider must be able to:
• Provide evidence proving that the housing provider has substantial, legitimate, nondiscriminatory interest supporting the housing denial.
• Show that the housing policy accurately distinguishes between criminal conduct that indicates a demonstrable risk to resident safety/property and criminal conduct that does not.
Under federal regulations, Public Housing Authorities must reject an applicant if the person has a lifetime registration requirement relating to their conviction for a sexually-oriented offense in any state and applicants convicted of manufacturing methamphetamine on federally-assisted property.
What does criminal record discrimination in housing look like?
Examples:
• A housing provider will not rent to a tenant because they served time in prison for drug possession 25 years ago but have not been in trouble with the law since.
• A housing provider automatically denies any applications where the potential renter has checked the box on the rental application inquiring if they have ever been convicted of a felony.
• A housing provider uses the person’s criminal record to deny housing as a means to discriminate on another basis, such as the person’s disability, family status, or sexual orientation.
• An individual has a criminal record due to a past drug or alcohol addiction but has since successfully completed a rehabilitation program.
* Being in recovery from alcohol and/or drug addiction is considered a disability under the Fair Housing Amendments Act of 1988 which prohibits discrimination based on disability and includes additional protections such as the right to reasonable accommodations and reasonable modifications.
 
From FAIR HOUSING FOR PEOPLE WITH A CRIMINAL RECORD: A DIGITAL TOOLKIT | FAIR HOUSING CENTER FOR RIGHTS & RESEARCH

Whenever a party with title to or an interest in property is involved in a divorce or dissolution of marriage proceedings, it is necessary to determine the legal effect of the proceedings on the title to the property.
WHY is that?
Because most real estate (especially a “marital residence”) will be considered a “marital asset” in determining the division of assets in a divorce.
AND ….
One spouse may actually want to keep the home or property. Selling the property and dividing the proceeds will not always be the final decree regarding the property. The actual property may be awarded to one or the other.
Even the spouse who is NOT an owner of record – who is not on title to the property – may well have an equitable interest in the property, based upon the equitable division of assets.
Satisfying that interest and properly conveying title to the property will likely require a signature or other cooperation even from a spouse who is not on the title to the property.
VERY IMPORTANT - Improper handling of a property which is the subject of a divorce proceeding can result in the invalidation of a sale and subject the parties to significant liability; and – in some cases – the Court can order that the title to the property revert back to one or other of the selling spouses. It could be taken from the Buyer.

Agent Pro Tip
Please ask ALL Sellers if they are in a pending divorce or whether a divorce could be filed during your Seller Engagement term. Even two seemingly happy Sellers, who both work well with you (and each other) during the sale process, may be going through a divorce and never tell you about it unless you ASK. Sometimes one side of the divorce proceeding will file a Lis Pendens in the public real estate records indicating that parties’ claim to the property or proceeds of sale. BUT there is not always a Lis Pendens filed – so without knowledge from your Seller that a divorce is proceeding, the Closing Attorney may never receive this important information.

But if a Divorce is Public Record, won’t you find it during a title exam anyway?
NOPE. Not unless the attorney is tipped off or directed to “go look” for the Divorce decree in the Superior Court Civil complaint filings. This is an entirely separate index, database and recording forum from the real estate records. Civil Complaint record searches are not a part of a title exam under the Georgia Title Standards. Also – the divorce could have been filed in any one of Georgia’s 159 counties. We cannot search them all! And finally – the parties may be “in the middle of a divorce” even if there is no formal public record filing yet. They could still be in the pre-filing stages.

To determine whether, and HOW, a decree of divorce or dissolution of marriage will impact title to property and closing, we must ascertain:

1. The validity of the decree: a. The court must have jurisdiction over the subject matter of the action under state law b. Did the court have jurisdiction over the parties to the action? We must be satisfied that the spouses make a personal appearance or waiver or be personally served in the divorce. c. Does the court have jurisdiction over the land? We cannot rely upon a divorce decree divesting and vesting title if the land is not located in the state where the court is located (an out of state divorce where GA property is involved) d. Is the decree final? Is there any possibility of appeal or review? Do not rely upon decrees which are not final unless the parties agree to the substance of the decree.

2. The nature of the interest held in the land: a. Title is held by one spouse only b. Title is held by both spouses as joint tenants c. Title is held by both spouses as tenants in common d. Title is held by both spouses as community property [not in GA].

3. Does the decree itself effectively terminate the interest in the land of one of the parties by adjudicating it to the other? If the decree sufficiently vests title in the other spouse, a certified copy of the order must be filed in the clerk's or recorder's office in each state to constitute constructive notice. NOTE: Most Divorce Decrees do not effectively pass (vest) title (within the Decree) from one spouse to the other.

4. Whether the decree orders one of the parties to convey that party’s interest in the land to the other a. If the decree does not sufficiently vest title in one spouse by other provisions of the decree, we require a deed from the other spouse if the decree orders a conveyance (IE, “wife shall quitclaim her interest in the marital residence to the husband”)

Blog Source: Hartman Law

Notices: The GAR Contract provides that all notices, including but not limited to offers, counteroffers, amendments, demands, terminations, and all other notices must be in writing, legible and signed by the person giving notice (buyer or seller). In the event of a dispute regarding notice, the burden shall be on the party giving notice to prove delivery. The GAR Contracts provide that notice may only be delivered by one of the following methods: 
      (a) In person; (b) by courier, an overnight delivery service, or certified or registered U.S. mail; (c) or by email or facsimile (FAX).                                                      
Although many real estate licensees and brokers text information to the other party, it is important to remember that text messages are not an acceptable form of giving notice under the GAR contracts.
Delivery of Notice: The GAR Contract also provides for when the notice is considered delivered and received. A notice to a party shall be deemed to have been delivered and received upon the earliest of the following to occur:
    (1,) The actual receipt of written notice by a party; (2) in the case of delivery by a delivery service, when the written notice is delivered to an address of the party set forth in the contract provided that a record of the delivery is created (i.e., return receipt requested); or (3) in the case of delivery electronically, on the date and time the written notice is electronically sent to an email address or fax number of a party that is included in the contract.
To be effective, notice must go to the email address, fax or address included in the contract!
Notice via Email: Most real estate contracts, including the GAR Contracts, now permit notices to be sent by email. The GAR Contract goes further and provides that notices sent by email are deemed received when sent, provided they are sent to an email address provided in the contract or subsequently provided via another permissible method of notice.
If an email address is neither provided on the signature page of the GAR Contract (for brokers or agents or unrepresented buyers or sellers) nor subsequently provided following the notice procedures in the agreement, then notice via email will not be deemed a valid form of delivery of notice to that party. 
Notice to an Unrepresented Party: Under the GAR Contract, a real estate licensee working with an unrepresented customer cannot normally receive email notice on behalf of the customer. Notice must be sent directly to the customer to the email or fax number included in the contract.
Notice to the Broker or Agent is Generally Notice to the Client: The GAR Contract provides that notice to the broker or agent shall be deemed notice to the party represented by the broker as a client, provided they are sent to an email address or fax provided in the contract or subsequently provided via another permissible method of notice.