Return of Deposit When the Seller is a Jerk

Suppose your buyers terminate the Agreement of Sale because the seller refuses to make requested repairs through the buyers’ corrective proposal.  Or, suppose the buyers terminate the Agreement within five days upon receipt of a condominium association resale certificate.   The buyers get the deposit back right?  Not so fast.

There are many places throughout the PAR Agreement of Sale that give the buyers the absolute right to terminate the Agreement with the return of deposit monies.  However, paragraph 26b of the PAR Agreement provides in part as follows:  “Regardless of the apparent entitlement to deposit monies, Pennsylvania law does not allow a broker holding deposit monies to determine who is entitled to the deposit money when settlement does not occur.”

So, what does this mean?  It means that the broker holding escrow deposits are not only bound by the terms of the Agreement of Sale but are also by laws and regulations regarding release of deposit money.  In short, the broker cannot release deposit funds where there is any “dispute” over the distribution.[1]  A dispute is assumed to exist unless one of the following occurs:

1. Final sale and settlement of the property;
2. A written agreement signed by both buyers and seller stating that there is no dispute and the agreement sets forth the release of deposit monies.  (PAR Release Form REL)
3. According to the terms of a final order of court.
4. According to the terms of a prior written agreement between the buyers and seller that directs the broker how to distribute the deposit monies if there is a dispute between the parties that is not resolved.  (PAR Agreement of Sale, paragraph 26c)

So, where does this leave our buyers?  In the absence of 1, 2 or 3 above stated, the deposit must remain in the escrow account for 180 days after the date of settlement, as stated in the Agreement of Sale.  If, at that time, the contract is not subject to litigation or mediation, the broker can at this time release the deposit monies back to the buyers.

Practice Tip:   Explain to your buyers that if they legitimately terminate the Agreement and if the seller is a jerk and won’t sign a Release, they won’t see their money for at least six months.