by Peg Ritenour
Vice president
Legal Services
The last several issues of OHIO REALTOR have contained articles detailing the new earnest money legislation that becomes effective April 6.
This legislation clarifies a broker’s duty to maintain earnest money in his trust account and provides for new optional language that can be included in purchase contracts regarding its disbursal when the funds are disputed. If this provision is included in a contract, it will give the parties two years from the date the earnest money was deposited in the broker’s trust account to provide the broker with either written instructions on how it is to be disbursed or notice that legal action has been filed with the courts. If neither of these is provided to the broker, the broker can remit the earnest money to the purchaser with no further notice to the seller.
Below are answers to questions received on the Legal Assistance Hotline regarding the new law:
Q: Last month’s issue contained contract language regarding disputed earnest money that can be included in purchase agreements. Is this specific language required or can I reword it?
A: The purchase contract language that was included in the March issue was merely sample language that was drafted as a service to members of the Ohio Association of REALTORS. This language was reviewed by the Ohio Division of Real Estate and Professional Licensing and found to satisfy the new legislation that permits this type of procedure. If you want to use other language, it should be drafted by an attorney to make sure that it does not deviate from the allowable process set forth under the new law.
Q: Several years ago I put language in my purchase contract allowing me to send notice to the seller that the purchaser isn’t going to perform. If the seller doesn’t demand the earnest money in writing in 20 days, I can give it back to the buyer. Can I keep that provision in my contract?
A: No. The new law sets forth four situations that allow a broker to disburse earnest money from his trust account. They are:
1) The transaction closes and the broker disburses the earnest money to the closing or escrow agent or otherwise disburses the money pursuant to the terms of the purchase agreement;
2) The parties provide the broker with written instructions that both parties have signed that specify how the broker is to disburse the earnest money;
3) The broker receives a copy of a final court order that specifies to whom the earnest money is to be awarded; or
4) The funds become unclaimed and the broker turns them over to the Division of Unclaimed Funds .
The only exception to these four situations is the new optional contract language establishing the two year “statute of limitations” on how long the broker must hold disputed funds.
According to the Ohio Division of Real Estate and Professional Licensing, the earnest money language you included in your contract a few years ago will no longer comply with the new license law requirements and therefore will need to be removed by April 6.
Q: Should I still follow that old 20 day notice procedure if that old contract was signed before April 6?
A: Yes. Because that was included in the contract the parties signed before April 6 is should still be followed.
Q: If I include the new language in my purchase contract and I haven’t received either a release signed by the parties or a court order within two years, do I have to notify the seller that I am returning the earnest money to the buyer?
A: No. Under the language permitted by HB 130, you do not need to notify the seller that the earnest money is being remitted to the buyer. This should be clearly stated in the language you include in your purchase contract provision.
Q: How do I calculate the two year period?
A: HB 130 specifies that the two year period runs from the date the earnest money was deposited in the broker’s trust account.
Q: What if I miss the two year anniversary of when the money was deposited? For example, the two years is up on May 1, 2011, but I don’t send it back until July 1, 2011? Will I be disciplined by the Division of Real Estate?
A: Under HB 130, brokers who are obligated to return earnest money to a buyer under such a provision in the purchase agreement will have no later than Sept. 1 of that calendar year to disburse the money to the buyer. While brokers should certainly will make this disbursement as soon as the two year time period has run, this Sept. 1 date was included in the legislation to provide a clear, definable deadline. If you would return the earnest money after Sept. 1, you could be disciplined by the Division of Real Estate.
Q: What if I mail the earnest money to the buyer, but it is returned as undeliverable?
A: Certainly you want to make a good faith effort to find a good address for the buyer. In the event the broker is unable to locate the buyer, the broker should follow the Unclaimed Funds Laws and disburse the money to the Ohio Division of Unclaimed Funds.
(See article in March 2009 OHIO REALTOR article regarding Ohio’s Unclaimed Funds law)