Eric McConnell is a former property manager and licensed real estate agent who has trained numerous employees on the fundamentals of real estate.
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.
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.
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.
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.
If the broker feels the documents signed by both parties provide sufficient direction about how to disburse the earnest funds, the broker has the discretion to disburse the earnest funds in the manner set out in the documents. If the broker decides to release the funds at his discretion, the broker must notify both parties in writing of the broker's intent to disburse the funds. There must be a minimum of five business days between the broker advising both parties in writing of the broker's intent to disburse the funds and the date the broker releases the funds. Brokers who release earnest money in good faith at their discretion are not in violation of the commission's procedures however they may still face civil liability for their decision.
If there is is no clear direction on how to disburse the earnest money, the broker may decide to hold the earnest money until directed how to release the funds by a court order. The broker must advise both parties in writing of this decision. While the litigation is pending, the broker is still forbidden from accessing the disputed funds for any purpose.
The conduct of brokers in Maine is regulated by the Maine Real Estate Brokerage and License Act. The brokerage and license act establishes uniform procedures for many broker related activities. One of the areas the act spells out a precise procedure for is the Maine real estate requirements for earnest money.
Brokers must open a trust account for any earnest money they receive. The funds must remain in that account until the transaction they were deposited to cover either closes successfully or falls through. In the event the transaction falls through, the license act lays out a process for the broker to release earnest money in disputed cases.
Brokers must notify both parties they intend to hold the funds until the parties come to a written agreement how to release them. In the event that the parties can't come to an agreement, brokers may choose to release the funds in the manner prescribed in the purchase and sale agreement. If there is no direction in the purchase and sale agreement, the broker must notify the parties that the broker will hold the funds until they reach a written agreement or a court order directs the disbursement.
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