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Maine Real Estate Requirements for Earnest Money

Instructor: Eric Mcconnell

Eric McConnell is a former property manager and licensed real estate agent who has trained numerous employees on the fundamentals of real estate.

The Maine Real Estate Commission governs the state's real estate industry by enforcing the Real Estate Brokerage License Act. The act sets the procedure for broker handling of earnest money. This lesson examines that procedure.

Maine Real Estate Requirements for Earnest Money

Tom is a Maine real estate broker representing Sally, who wants a summer home in Kennebunkport. Tom shows Sally a fixer-upper on the shore. Sally loves the house but she's nervous about how much work the house needs will cost. Tom suggests Sally write an offer on the house that is contingent on the estimated cost of repairs being less than $45,000. Sally agrees.

Sally writes an earnest money check for $10,000 and gives it to Tom. The inspector looks at the house and estimates the cost of repairs is between $60,000 and $75,000, which is well over the contingency in Sally's offer. The sellers offer to lower the price by $15,000, which added to the $45,000 Sally budgeted for the renovations is $60,000.

Sally appreciates the offer, but decides she's going to exercise her contingency clause and rescind her offer because $60,000 is on the low end of the estimated repair cost. The owners are angry that their house has been off the market for weeks and feel like they met Sally halfway with their price reduction. Their broker sends Tom a demand letter for Sally's earnest money deposit. In cases such as this, Tom must follow the Maine real estate requirements for earnest money established by the Maine Real Estate Brokerage and License Act. Below, we will examine the requirements.

Trust Accounts

Real estate brokers in Maine must establish and maintain a trust account for earnest monies or any client funds they receive in connection with transactions being done through the brokerage. The account must be in a federally insured account in a bank or credit union which is located and licensed in the state of Maine. The trust accounts must clearly indicate the name of the client or transaction they are being held for and name the broker as the trustee for that account. Brokers are forbidden from withdrawing funds from the account for any purpose other than executing the transaction they are being held for. Brokers must keep full records of trust account withdrawals, deposits and other transactions in accordance with the accounting rules established by the commission. These records must be kept at the broker's registered business address and made available to the commission, or the commission's representatives upon request.

Earnest Money Procedures

In a perfect world, earnest money is released when the transaction closes successfully. For brokers, this is the cleanest, easiest way to release escrow funds. Unfortunately, when deals don't close as expected, it is not uncommon for disputes to arise about the distribution of the earnest money. The Maine Real Estate Commission has instituted procedures for the release of disputed earnest money.

Notification

In the event of a dispute surrounding the distribution of earnest money, the first step the broker holding the earnest money must take must take is to advise both parties to the transaction in writing that one party has made a demand for the earnest money to be released in their favor. The broker must also notify each party of the broker's intent to hold the earnest money until both parties come to an agreement in writing as to how the earnest monies should be disbursed.

Broker's Discretion

It is not uncommon for both parties not to reach a written agreement regarding the disbursement of earnest money after a deal falls through. In this case, and only after both parties have been notified of the dispute by designated broker, the broker is allowed to review the terms of the purchase and sale agreement or any addendums and documents related to the transaction for direction as to how the earnest money should be disbursed. It important to note that during this review, only documents which have been signed by both parties to the transaction can be considered.

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