Abandonment of Claim to Disputed Deposit

Q: Several months ago, the contract on one of my listings didn’t close because the husband-wife buyers split up within days after signing it and just decided to walk away from the deal. They didn’t even apply for the mortgage. My sellers thought they were entitled to keep the earnest money deposit due to the buyers’ breach, but the buyers strongly disagreed. They felt like since they’d signed the contract only days ago, the seller shouldn’t get to keep the money, and refused to sign anything having to do with the forfeiture of the earnest money. I have not heard from the buyers since that time. The money is in my trust account and neither side ever went to court over it. A couple of weeks ago, the seller called me about it and asked me for the money again. I tried to contact the buyers and the telephone number is disconnected. I sent the buyers a letter about it to the address I had on file for them, but the letter came back “moved-no forwarding address.” May I give the money to the sellers?

A: Under certain circumstances, yes. North Carolina Real Estate Commission Rule A.0116(d) says, in part, “If it appears to a broker holding a disputed deposit that a party has abandoned his or her claim, the broker may disburse the money to the other claiming parties according to their written agreement provided that the broker first makes a reasonable effort to notify the party who has apparently abandoned his or her claim and provides that party with an opportunity to renew his or her claim to the disputed funds.” The NCREC staff generally takes the position that a “reasonable effort” to contact the person would at least include several telephone calls and letters to the person’s last known residence (and business) address. So, if there was another agent or perhaps an attorney involved who was working with or for the buyers, you would do well to contact that agent or attorney for addresses and possible forwarding information. Must you send the letters via certified mail? You certainly could, but it’s not specifically required. How long do you have to wait for a response to your letters before you can disburse the money? Again, no time period is set by the Rule, but NCREC staff suggests at least thirty (30) days from your last attempt to contact the person(s) without a response. The standard offer to purchase and contract says if the buyer breaches the contract, the earnest money is forfeited upon the seller’s request, so you would then proceed to disburse the funds to the seller. This is the “according to their written agreement” part of the Rule. Caveats: (1) Do not abuse this particular part of the Rule dealing with abandonment to “get around” the other, very important part of the Rule that requires you to hold disputed monies in your trust account until you get a writing signed by both parties consenting to its disposition or an order from a court of competent jurisdiction. In other words, if you know or have reason to believe that there is an continuing dispute over the return or forfeiture of the earnest money, then the claim has not been abandoned and you cannot avail yourself of this procedure, no matter how much you might believe that one party is entitled to the money on account of the other party’s actions; (2) maintain complete records, documenting your efforts to locate the party you believe has abandoned his or her claim; and (3) this procedure does not automatically release you from possible future civil liability in the event the disputing party subsequently reasserts his or her claim, so you may want to consult your firm’s attorney before you go down this road.