by Peg Ritenour
Vice president
Legal Services and Administration
On Jan. 6, 2009 Governor Strickland signed into law legislation that will provide greater statutory authority and options to brokers regarding the handling of disputed earnest money. This legislation was the result of an OAR Task Force whose recommendations were adopted by the OAR Board of Directors at the Convention last September.
The Task Force studied the problems created when a transaction fails to close and the parties cannot agree on which of them is entitled to the earnest money. Under a longstanding Division of Real Estate and Professional Licensing policy, brokers in this situation are required to maintain the earnest money in their trust account until the parties reach an agreement or a court rules on who should get the funds. Prior to passage of HB 130, this policy was not set forth in the license law. The new legislation codifies the Division’s position, clearly setting forth the broker’s obligation to maintain the disputed funds in his/her trust account. By including this requirement in the license law, brokers will now have statutory language to which they can direct the parties and their legal counsel who question the broker’s handling of the funds.
More significantly, though, HB 130 will enable brokers to place a time limit on how long they must continue to hold such disputed funds. It accomplishes this by allowing brokers to include a provision in their purchase contracts that creates a sort of “statute of limitations” on their obligation to hold the funds.
Under this provision, the parties will have two years from the date the earnest money was deposited in the broker’s trust account to resolve the dispute or initiate legal action. If they fail to notify the broker that they have either one of these two things, then under the terms of the contract, the broker will return the earnest money to the purchaser without any further notice to the seller. By including such a provision, broker’s will be able to clear out these disputed earnest money deposits after two years from the date of deposit. It is believed this is ample time for the parties to either resolve the problem on their own or to initiate the necessary legal action to do so.
Below are answers to several of the questions initially posed about the new legislation.
Q: When does the new law become effective?
A: April 6, 2009
Q: Is OAR going to provide sample language for brokers and local Boards of REALTORS to include in their purchase agreements?
A: Yes. OAR will be drafting language and submitting it to the Ohio Division of Real Estate and Professional Licensing to review. It will be posted on OAR’s website and included in Ohio REALTOR as soon as it is approved.
Q: Does the license law require that all purchase agreements contain the new earnest money provision after April 6?
A: No. This new legislation merely allows brokers to include such language at their option.
Q: Is this provision only available for residential purchase contracts or can it be used for commercial and industrial transactions as well?
A: It can be used for any purchase agreement for the purchase/sale of real estate.
Q: Will the new law allow me to return disputed earnest money I am currently holding in my trust account if it has been more than two years?
A: No. The ability to return the earnest money to the purchaser after two years will only apply to purchase agreements that contain the new provision that sets forth that process. Because that language was not in the purchase contracts on which you are currently holding earnest money in your trust account, that process cannot be used.