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Weekly Q&As

Who is entitled to the earnest money deposit if the buyer dies before closing?

Release Date: 05/02/2017

This email address is being protected from spambots. You need JavaScript enabled to view it., Martin & Gifford, PLLC

QUESTION: I represent a seller who entered into an Offer to Purchase and Contract (Standard Form 2-T). The buyer paid a due diligence fee and a $2500 earnest money deposit. After the due diligence period expired but before closing the buyer unexpectedly passed away. The buyer's executor has indicated that the estate does not intend to proceed with the purchase. My client has asked me if he is entitled to the deceased buyer's earnest money deposit if the executor fails to close on the transaction. What should I tell him?

ANSWER: While it may not seem just or moral for the seller to receive the buyer's earnest money deposit in this context, it is nevertheless true that the seller is legally entitled to that deposit. There are several reasons for this outcome.

First, the law in North Carolina generally holds that executors and administrators are bound by all of the contractual obligations of their decedents, except those that are personal in nature. A contract of an author to write a book, or an artist to paint a picture are examples of "personal contracts" that are said to die with the person. Death makes the performance of those types of contracts impossible. As a result, executors and administrators cannot be held liable for damages based on their failure to complete personal contracts.

In contrast, a contract to purchase real estate is not a personal contract. Therefore, if an executor or administrator neglects or refuses to carry out the purchase contract of his or her decedent, the seller will have all the remedies for breach that are set forth in Form 2-T. That includes the seller's right to terminate the contract due to the estate's failure to complete Closing, and to recover the buyer's earnest money deposit based on that breach of contract. 

Paragraph 18 of Form 2-T provides additional support for this position. It states: "This Contract shall be binding upon and shall inure to the benefit of Buyer and Seller and their respective heirs, successors and assigns." This language explicitly obligates the Buyer's heirs and estate to honor all of the Buyer's contractual obligations, including the obligation to complete the purchase in a timely fashion. If the estate fails to close, seller has the right to provide the buyer's estate with a unilateral notice of termination and to request the release of the earnest money deposit.

 

NC REALTORS® provides articles on legal topics as a member service. They are general statements of applicable legal and ethical principles for member education only. They do not constitute legal advice. The services of a private attorney should be sought for legal advice.

© Copyright  2017. North Carolina Association of REALTORS®, Inc. This article is intended solely for the benefit of NC REALTORS® members, who may reproduce and distribute it to other NC REALTORS® members and their clients, provided it is reproduced in its entirety without any change to its format or content, including disclaimer and copyright notice, and provided that any such reproduction is not intended for monetary gain. Any unauthorized reproduction, use or distribution is prohibited.

 

 

Can a buyer pay a due diligence fee in cash?

Release Date: 04/25/2017

This email address is being protected from spambots. You need JavaScript enabled to view it., Martin & Gifford, PLLC

QUESTION: I've had several agents in my firm recently ask me if a Due Diligence Fee can be paid in cash. I've advised them it's better to get a cashier's check, certified check, or perhaps even a money order so there is some kind of paper trail. However, one agent's client has a deep distrust of financial institutions. If this client insists on paying the Due Diligence Fee in cash, is it okay and if so, what steps need to be taken?

ANSWER: We agree with your advice discouraging the payment of cash Due Diligence Fees (“DDF”) in cash.  However, it is permissible for a buyer to pay a DDF in cash; in fact, we think a seller would be obligated to accept it since the Offer to Purchase and Contract (form 2-T) does not prescribe any particular method of payment for the DDF and cash is legal tender.

The proper handling of a cash DDF payment is a bit tricky.  The Real Estate Commission’s Rule on Handling of Trust Money (Rule 58A.0116) generally requires brokers handling monies belonging to others to deposit those monies into a trust account.  An exception to the general rule permits an agent to accept and deliver a due diligence fee paid by check or other negotiable instrument made payable to the seller.  However, the Rule provides that a cash payment received by a broker must be deposited into trust no later than 3 days following its receipt, no exceptions.  So, if a buyer gives a cash DDF to their buyer agent, the cash would need to be deposited into the firm’s trust account within 3 days of its receipt.  A trust account check made out to the seller could be prepared and delivered to the listing agent or the seller right away since there would be no need to wait for cash to clear like a check. 

 However, if the buyer agent’s firm doesn’t have a trust account, the cash would need to be delivered by the buyer to the listing firm, and the listing firm would be required to deposit the cash into its trust account.  If the listing firm doesn’t have a trust account either, the cash DDF would need to be delivered by the buyer directly to the seller.  That may raise different concerns.

 

NC REALTORS® provides articles on legal topics as a member service. They are general statements of applicable legal and ethical principles for member education only. They do not constitute legal advice. The services of a private attorney should be sought for legal advice.

© Copyright  2017. North Carolina Association of REALTORS®, Inc. This article is intended solely for the benefit of NC REALTORS® members, who may reproduce and distribute it to other NC REALTORS® members and their clients, provided it is reproduced in its entirety without any change to its format or content, including disclaimer and copyright notice, and provided that any such reproduction is not intended for monetary gain. Any unauthorized reproduction, use or distribution is prohibited.

 

 

Listing Agreements and Consent Orders in Divorce Cases

Release Date: 04/18/2017

This email address is being protected from spambots. You need JavaScript enabled to view it., Martin & Gifford, PLLC

QUESTION: A potential client has approached me about selling her home. She is in the middle of a divorce, and the judge has just signed a consent order awarding the marital home to her. She would like to sell it as soon as possible and use the money to move on with her life.

The wife’s divorce attorney has assured me that she will get the house. However, the husband has not yet signed a quitclaim deed, even though the attorney has said that getting a quitclaim deed will not be a problem. Can I accept the listing?

ANSWER: The answer is yes, but you will need to take some steps to protect yourself. First and foremost, it is important to understand that the consent order likely does not transfer title of the home. Most orders concerning the property of a divorcing couple will only be a direction from the judge instructing one party to give their interest to the other. This means the husband could decide not to sign the quitclaim deed. He could also decide to pursue an appeal of the judge’s order instead of giving over his interest to the wife. The bottom line is that if the husband does not quitclaim his interest, the wife does not have full title.

If getting a quitclaim deed from the husband is not an issue, then we would strongly recommend waiting for that process to be complete before taking the listing. However, if the wife insists that she needs a listing agreement now, you could sign a listing agreement with the wife and delay the advertising date until she obtains full title. You might also consider having an attorney draft an addendum to the listing agreement explaining that the listing agreement is contingent on the wife obtaining full ownership.

Just remember that a seller’s ability to convey title to a buyer is a material fact. If at any point during the listing it appears that the wife will not be able to do so, you must disclose those issues to any potential buyer.

 

NC REALTORS® provides articles on legal topics as a member service. They are general statements of applicable legal and ethical principles for member education only. They do not constitute legal advice. The services of a private attorney should be sought for legal advice.

© Copyright  2017. North Carolina Association of REALTORS®, Inc. This article is intended solely for the benefit of NC REALTORS® members, who may reproduce and distribute it to other NC REALTORS® members and their clients, provided it is reproduced in its entirety without any change to its format or content, including disclaimer and copyright notice, and provided that any such reproduction is not intended for monetary gain. Any unauthorized reproduction, use or distribution is prohibited.

 

 

Is an unsigned addendum enforceable?

Release Date: 04/11/2017

This email address is being protected from spambots. You need JavaScript enabled to view it., Martin & Gifford, PLLC

QUESTION: I recently submitted a signed offer to a listing agent. When the contract was returned to us, a box was checked in paragraph 15 of Standard Form 2-T to indicate that the Short Sale Addendum (Form 2A14-T) may be a part of the contract. In addition, a copy of the Short Sale Addendum signed by the Sellers was attached to the Contract. My buyer clients initialed the change in paragraph 15 but never signed the Short Sale Addendum. Absent their signatures on the Short Sale Addendum, is the Addendum part of the contract? Without my clients' signatures on the Addendum, do the Sellers have the right to terminate the contract until they receive a "Notice of Approval of Short Sale" from their lender?

ANSWER:  Based on the facts you have described, we believe the Short Sale Addendum is part of the Contract and is legally binding, despite the fact that the Addendum was not signed by the Buyers. However, by failing to obtain the Buyers' signatures on the Addendum, the Sellers and their agent have allowed there to be some uncertainty. That is not what should have happened.

The Guidelines for completing Form 2-T (See Standard Form 2G) include instructions for adding an addendum to the contract. Paragraph 15 of Form 2G states that agents should check the box for any of the standard addenda that may be attached to the contract. The next sentence reads: "Any addenda referred to here should be properly identified, signed by the parties, and attached to each original of the contract."

Here, the lack of the Buyers' signatures on the addendum is only one factor a court would likely consider in deciding the parties' intentions. A court would also consider the fact that, by initialing the Sellers' change to paragraph 15, the Buyers signified their agreement to include the Short Sale Addendum as part of the Contract. Finally, a court would likely find it compelling that the Addendum was attached to the Contract when Sellers delivered the Contract to the Buyers. In our view, these facts provide sufficient evidence that the Buyers intended to be bound by the terms of the Short Sale Addendum. As a result, the likely result is that Sellers would be permitted to terminate the Contract pursuant to those terms.

To avoid any uncertainty, and the possibility of a later dispute, we strongly encourage agents to make sure that all addenda attached to a contract are signed by all parties.

 

NC REALTORS® provides articles on legal topics as a member service. They are general statements of applicable legal and ethical principles for member education only. They do not constitute legal advice. The services of a private attorney should be sought for legal advice.

© Copyright  2017. North Carolina Association of REALTORS®, Inc. This article is intended solely for the benefit of NC REALTORS® members, who may reproduce and distribute it to other NC REALTORS® members and their clients, provided it is reproduced in its entirety without any change to its format or content, including disclaimer and copyright notice, and provided that any such reproduction is not intended for monetary gain. Any unauthorized reproduction, use or distribution is prohibited.

 

 

Does a refrigerator stay if it’s not in the Contract?

Release Date: 04/04/2017

This email address is being protected from spambots. You need JavaScript enabled to view it., Martin & Gifford, PLLC

QUESTION: If a refrigerator is listed as personal property in MLS, does it automatically become a part of any contract for the property without having to list it in the Offer to Purchase and Contract?  

ANSWER:  We’ve written about this subject before but it keeps coming up like the proverbial bad penny.  The answer to your question is an emphatic NO!

The MLS is a mechanism for MLS participants to make and accept offers of cooperation and compensation among themselves. Buyers and sellers are not MLS participants, and nothing in an MLS listing magically becomes a part of any contract between a buyer and seller.  Paragraph 20 of the Contract specifically provides that “[t]his Contract contains the entire agreement of the parties and there are no representations, inducements or other provisions other than those expressed herein.”

Any personal property included in the sale must be spelled out in the Contract.  Paragraph 3 of the Guidelines for completing the Contract (form 2G) states: “List all items of personal property that are to be included in the sale… It is advisable to list any item included in the sale about which some dispute may arise." Examples listed include a refrigerator. 

Who’s to blame if the refrigerator isn’t listed in the Contract and the seller takes it?  In our view, it is primarily the responsibility of the buyer agent to make sure that any personal property the buyer wants to keep is listed in paragraph 3 of the Contract.  However, we also think that the listing agent may bear some responsibility too.  If personal property is to be identified in the MLS listing, the listing agent should be careful to avoid wording that might lead others to believe that the items listed will necessarily be included, and should instead indicate that those items are "negotiable” or something to that effect.  Also, a listing agent may be setting himself or herself up for a potential claim that he or she has violated Article 12 of the Code of Ethics because they haven't presented a "true picture" in their representations in MLS.  We are not saying that this would necessarily be a violation of the Code, but we are suggesting that the listing agent should avoid leaving himself or herself open to such an allegation.

Listing agents and buyer agents should take care to ensure to the extent possible that the parties are on the same page regarding personal property that will be or won’t be a part of the transaction.  Otherwise, they may well find themselves chipping in to buy a new refrigerator!

 

NC REALTORS® provides articles on legal topics as a member service. They are general statements of applicable legal and ethical principles for member education only. They do not constitute legal advice. The services of a private attorney should be sought for legal advice.

© Copyright  2017. North Carolina Association of REALTORS®, Inc. This article is intended solely for the benefit of NC REALTORS® members, who may reproduce and distribute it to other NC REALTORS® members and their clients, provided it is reproduced in its entirety without any change to its format or content, including disclaimer and copyright notice, and provided that any such reproduction is not intended for monetary gain. Any unauthorized reproduction, use or distribution is prohibited.