We’re Looking Out for Your Best Interests

Dear Forms Guy: I’m the listing agent on a residential sale that has gone south. The seller is irate that the buyer has terminated the contract based on the Cost of Repair Contingency and won’t consent to a return of the buyer’s earnest money deposit, which our firm is holding. Between you and me, I think the estimated cost of necessary repairs clearly exceeds the agreed-upon amount, but my client is very upset that the deal has fallen apart and frankly isn’t acting reasonably. I see that the last sentence in the “Note” at the end of paragraph 4 of the Offer to Purchase and Contract (form 2-T) states that we can pay the deposit to the clerk of court in accordance with the provisions of N.C.G.S. 93A-12. What’s that all about? Sincerely, Veronica

Dear Veronica: NC REALTORS® were instrumental in getting a law passed in 2005 to help real estate agents get disputed deposits out of their trust accounts. According to the law, a real estate broker acting as an escrow agent may deposit disputed funds with the clerk of court in the county in which the property for which the disputed monies are being held is located, following 90 days’ written notice to the persons claiming ownership of the disputed monies. Sincerely, Forms Guy

Veronica: Is this new procedure mandatory?

Forms Guy: No.

Veronica: If an escrow agent decides to use the procedure, is there any particular notice form that has to be used?

Forms Guy: No, but NC REALTORS® created a form for that purpose. It’s in the Association’s forms library under the catchy title: “Notice of Intent To Deposit Disputed Earnest Money With Clerk of Court,” form 740.

Veronica: How must the notice be sent?

Forms Guy: The notice must be provided by delivering a copy of it to the person or by mailing it to the person by first-class mail at the person’s last known address.

Veronica: Can the escrow agent deliver the notice or send it to the person’s real estate agent?

Forms Guy: No, it has to be delivered or sent to the person claiming ownership of the funds, not the person’s agent.

Veronica: What if the escrow agent doesn’t have a current address for one of the parties?

Forms Guy: The law only requires that the notice be sent to the person’s last known address. A broker should make a reasonable effort to determine a person’s current address, but if, for example, the person has moved and left no forwarding address, it should be sufficient to send the notice to the last address.

Veronica: What if you’re a listing agent holding a disputed earnest money deposit and you don’t have the buyer’s address and the buyer’s agent isn’t comfortable giving their buyer client’s address to you?

Forms Guy: That could be a problem. For that reason, we have recently added wording to the standard residential listing and buyer agency agreements where the client directs the agent to disclose the client’s last known address to the escrow agent upon request so that the escrow agent can comply with the notice requirement of the law.

Veronica: What if the escrow agent sends the notice and the parties resolve the dispute before the 90 days is up?

Forms Guy: Assuming they both sign a release, the escrow agent can then disburse the deposit according to the agreement of the parties.

Veronica: What if one party takes the other one to small claims court before the 90 days is up?

Forms Guy: If the magistrate issues a decision ordering disbursement, the escrow agent would disburse the deposit according to the terms of the magistrate’s order.

Veronica: OK, assume 90 days runs and there’s been no agreement between the parties and there’s no court order. What happens then?

Forms Guy: The escrow agent can then deposit the disputed funds with the clerk of court. At the time of the deposit, the escrow agent must certify that they’ve properly notified the parties. The certification form is also in the NCAR forms library as form 741. There’s a charge of $6 for filing the form with the clerk.

Veronica: What happens to the money after it’s deposited with the clerk?

Forms Guy: Either party may file what’s known as a “special proceeding” with the clerk to recover the disputed monies. The filing fee is currently $88. If a special proceeding is filed, the clerk would then hold a hearing to determine the rightful ownership of the disputed funds and distribute the funds accordingly. If the party filing the special proceeding prevails, they may recover the costs of filing the action as well.

Veronica: Would a party have to hire a lawyer to help them with the special proceeding?

Forms Guy: An individual would not, but that would be up to them to decide. Frankly, if the deposit is small, the expense of hiring a lawyer would likely exceed the amount of the deposit. NC REALTORS® worked with the Administrative Office of the Courts (AOC) to develop an easy-to-complete form with instructions that a non-attorney could use to file a special proceeding on their own. The form is called “Petition To Recover Disputed Monies,” (AOC-SP-261). If the form isn’t available in the clerk’s office, a filable PDF version is available on the AOC’s website at http://www.nccourts.org/forms/FormSearch.asp.

Veronica: May a party’s real estate agent help them complete the form?

Forms Guy: No! As the instructions for completing the form state in bold type: “Neither the Clerk nor any real estate broker who represented a party in the real estate transaction that gave rise to this dispute can give you legal advice about your case or assist you in completing this form. … If you have any questions about your case, or about completing or using this form, you should contact an attorney.”

Veronica: What if neither party files a special proceeding?

Forms Guy: If no special proceeding is filed within one year of the disputed funds being deposited with the clerk, the disputed funds are deemed unclaimed and are to be delivered to the State Treasurer in accordance with the North Carolina Unclaimed Property Act.

Veronica: Thanks for the good information, Forms Guy.

Forms Guy: Anytime, Veronica. Best wishes!