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BROKER CORNER

Rules of the Game: Closing Attorney Holding the Earnest Money

1/9/2020

11 Comments

 
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Most of the time, Buyer deposits are held by the Selling Agent’s Broker.  At RMAA, we have clear procedures in place to track the funds.  We follow the money and let you know if the money isn’t forthcoming.
But what if the parties have agreed that the closing attorney should hold the money?  GAR Forms 510 and 511 recite the procedures, but things can go astray.

Consider the following hypothetical:

You are the Listing Agent. A “Closing Attorney Act as Earnest Money Holder”  (GAR F510) has been included in the Purchase and Sale Agreement, so you assume the earnest money is safely in the closing attorney’s account. You assume the closing attorney has agreed to hold the funds, but you have not received a signed Escrow Agreement (GAR F511) back from the closing attorney.  And it has slipped your mind to check on it.   But the Buyer’s agent did not deliver the purchase agreement or the Escrow Agreement to the attorney.  The attorney has received the funds by wire, but has no name or address for it.  The deal is falling apart and the seller expects the wired funds to be forfeited.  Or worse, no contract and no funds were delivered to the closing attorney.  Oops.

These are the rules of the game:
  1. The Buyer’s agent must deliver the fully executed PSA  and Escrow Agreement (F511) to the attorney within 2 days of the binding date.
  2. The Closing Attorney has to agree to hold the funds within 3 days, countersign the Escrow Agreement (F511) and return it to the agents.  If the attorney never got the contract, there is nothing to agree to or deliver.  
  3. The Buyer (or the Buyer’s agent) is responsible for sending all earnest money to the Closing Attorney by wire transfer and immediately notify Seller when it has been done.
  4. If the Closing Attorney named as Holder has not become Holder either because the Closing Attorney rejects being the Holder, fails to timely become Holder or becomes Holder but later resigns, then the Alternate Holder,  named in the GAR F510  (who must be a broker in this transaction) automatically becomes the Holder and the funds can be transferred to the alternate Holder.  
Back to the hypothetical.
  1. No F511 was signed, so the Closing Attorney has not agreed to be the Holder. 
  2. The funds were wired, but the Closing Attorney rejected the wire because there was no agreement.  (Or no funds were wired at all.)
  3. The deal is falling apart.  There are no contingencies.  The Seller is expecting the earnest money to be forfeited to him.  
  4. But there are no funds.  
  5. The Buyer’s agent didn’t do his job, but doesn’t look so bad to the Buyer because the Buyer didn’t lose his money.
  6. The Listing Agent has have to answer to his client because he didn’t check to see if the Buyer’s agent did his job and that the funds were held.
  7. Does the Seller sue for the earnest money that should have been in escrow?  Who does the Seller sue? His agent or the Buyer’ agent?  Or both?  Yikes.

Moral of the story:  If you are the Buyer’s agent, deliver the fully executed agreement along with the Escrow Agreement ASAP after the Binding Date.  The Rule is 2 days.  If you are either the Listing Broker or the Buyer’s Broker, make sure you have received the Escrow Agreement back from the Closing Attorney no later than 5 days after Binding Date.
11 Comments
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8/19/2023 08:34:30 am

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2/2/2024 05:02:43 am

This article provides valuable insights into the importance of clear procedures and communication in real estate transactions, specifically regarding the handling of earnest money. It highlights the potential pitfalls that can occur when parties involved in a real estate deal fail to follow established protocols, such as delivering signed agreements promptly and ensuring that the closing attorney holds the funds as agreed. The article's cautionary tale serves as a reminder to both buyer's and listing agents of their responsibilities to ensure a smooth and successful transaction. It emphasizes the need for diligence and timely action to prevent potential disputes and legal complications. Well done for shedding light on this crucial aspect of real estate transactions!

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2/15/2024 08:58:34 pm

This article offers insightful observations on the critical need for transparent procedures and effective communication in real estate dealings, especially concerning the management of earnest money. It underscores the risks that arise when parties in a real estate transaction neglect to adhere to set protocols, such as timely submission of signed contracts and the agreed-upon safeguarding of funds by the closing attorney. Serving as a cautionary example, the article reminds both buyers' and sellers' agents of their duties to facilitate a seamless and successful transaction. It stresses the importance of careful attention and prompt actions to avert potential disagreements and legal issues. Kudos for highlighting this essential element of real estate transactions!

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2/20/2024 12:45:10 am


This article provides valuable insight into the intricate process of handling earnest money in real estate transactions, shedding light on the responsibilities of various parties involved. The hypothetical scenario presented illustrates the importance of clear communication, adherence to timelines, and meticulous attention to detail in ensuring the smooth flow of transactions. By outlining the rules and potential pitfalls, the article serves as a helpful guide for both buyers' and listing agents, emphasizing the critical role each party plays in safeguarding the earnest money and facilitating a successful closing. Overall, it's a reminder of the importance of diligence and accountability in real estate transactions, highlighting the potential consequences of overlooking crucial steps in the process.

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3/19/2024 11:26:06 pm

This article effectively outlines the crucial procedures involved when the closing attorney holds the earnest money in a real estate transaction. It emphasizes the importance of clear communication and adherence to timelines to prevent complications and potential legal issues. The hypothetical scenario provided offers a practical example of how things can go astray when these procedures are not followed diligently. By highlighting the responsibilities of both the buyer's and listing agents, as well as the closing attorney, the article provides valuable guidance to ensure smooth transactions and protect the interests of all parties involved. Thank you for shedding light on this aspect of real estate transactions and offering practical advice to agents navigating these processes.

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3/31/2024 11:02:43 pm

This article provides a clear and important reminder about the procedures involved when the closing attorney holds the earnest money in a real estate transaction. The hypothetical scenario presented illustrates the potential pitfalls that can occur if these procedures are not followed diligently. It emphasizes the critical roles of both the buyer's and listing agents in ensuring that the necessary agreements are signed and delivered in a timely manner to prevent complications and protect all parties involved. The article effectively communicates the importance of adherence to these rules to avoid legal issues and ensure a smooth transaction. Overall, it serves as a valuable resource for real estate professionals, highlighting the importance of attention to detail and proper communication in real estate transactions. Great job!

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4/8/2024 01:36:31 am

This article offers valuable insights into the complex process of managing earnest money in real estate transactions, elucidating the responsibilities of all parties involved. Through a hypothetical scenario, it underscores the significance of clear communication, adherence to timelines, and meticulous attention to detail to ensure seamless transactional flow. By delineating the regulations and possible pitfalls, the article serves as a practical guide for both buyers' and listing agents, stressing the pivotal role each party plays in safeguarding earnest money and facilitating successful closures. Overall, it serves as a poignant reminder of the importance of diligence and accountability in real estate dealings, shedding light on the potential repercussions of overlooking crucial steps in the process.

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4/10/2024 09:11:54 am

This article offers valuable insights into the complex process of managing earnest money in real estate transactions, shedding light on the responsibilities of the various parties involved. Through a hypothetical scenario, it effectively illustrates the significance of clear communication, adherence to timelines, and meticulous attention to detail in ensuring smooth transactional flow. By delineating the rules and potential pitfalls, the article serves as a helpful guide for both buyers' and listing agents, underscoring the critical role each party plays in safeguarding earnest money and facilitating successful closings. Overall, it serves as a reminder of the importance of diligence and accountability in real estate transactions, emphasizing the potential consequences of overlooking crucial steps in the process.

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4/17/2024 03:15:08 am

This article provides valuable insights into the intricate process of managing earnest money in real estate transactions, shedding light on the responsibilities of the various parties involved. Through a hypothetical scenario, it effectively illustrates the importance of clear communication, adherence to timelines, and meticulous attention to detail in ensuring a smooth transactional flow. By outlining the rules and potential pitfalls, the article serves as a helpful guide for both buyers' and listing agents, emphasizing the critical role each party plays in safeguarding earnest money and facilitating successful closings. Overall, it serves as a reminder of the importance of diligence and accountability in real estate transactions, highlighting the potential consequences of overlooking crucial steps in the process.

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10/31/2024 10:20:20 am

I’m sharing this with my friends. Looking forward to more posts!

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5/14/2025 09:23:38 am

This article really opened my eyes to how important it is to follow the right steps when dealing with earnest money in real estate transactions. I never realized how easily things could go wrong if the proper paperwork isn’t completed or if deadlines are missed, like when the Buyer’s agent doesn’t deliver the necessary documents to the closing attorney. The story about the deal falling apart because of these mistakes made it clear how crucial it is to stay on top of everything. I love how the article breaks down the rules so simply and helps me understand the potential consequences of not following them. Great job explaining this process clearly and showing how one small mistake can lead to big problems!




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