Earnest Money Nightmare
My sellers were excited, we had delayed closing to allow the renters a 60 day move out. The offer was $40,000 over asking, and they wanted to be done. The buyer was anxious to take over and requested permission to clean out, paint, and show potential renters weeks before closing. Whoa. I told the agent that presented a huge liability. The seller would want a hold harmless addendum, buyer’s insurance in place. No, he didn’t want to do that, so he moved up closing. Everything went smoothly, we wished each other luck and waved goodbye.
I trotted the settlement statement and balance of commission to the office. The next morning I got a call asking where is the $5000 earnest money. You’re joking? No. It wasn’t delivered? No. The agent had sent me a photo of the check. How could it not be delivered?
The selling agent was surprised. He didn’t understand how it could happen, assumed that the sellers walked away with an extra $5000, but he hadn’t seen, collected, nor sent the actual check. He assumed that the buyer did that. He agreed to call the buyer who was very busy and would have to go through all his accounts, I’d have to wait it out. I emailed him a photo of the check he sent, “This should take your buyer a few minutes to check with this bank, this check number, dated May…….”
I let my title company know, they were shocked. Well, me too, but what next? The buyer signed a cooperation agreement with both title companies. The title company called the buyer who claimed it was sent. I called the agent a second time, he told me that it was my problem for losing the check. My broker was in touch with the other broker who promised to do what they could. My 3rd check in with the agent produced an angry email stating that he would not be barraged about my broker’s screw up. The title company forwarded an email response from the buyer saying that he was ridiculously busy, the check was never cashed, and would resend a check minus the cancellation fee when he wrote out his bills. The buyer is not only an agent, but a broker/investor. He never sent the check, it was not lost. My broker responded with a deadline and the threat of legal action. The buyer/broker/investor didn’t care, the days and deadline slipped by.
The legal advice I got was a surprise. I couldn’t commence action because the Earnest Money wasn’t owed to me. The earnest money wasn’t owed to the broker either. The contract was to pay the sellers $xxxxxx including EM, and the sellers signed a contract to pay the brokerage. The sellers would have to file. The sellers were very cooperative, they’d help in any way. I was prepared to do battle.
My broker again appealed the selling broker, this time alluding to an ethics complaint against both agent and buyer. Then I got an email from the agent, “it should be in the mail today or tomorrow.” My title company forwarded an email after contacting the buyer, “it’s already in the mail.” It finally came into the office 75 days after it was due.
But wait, there’s more.
My office administrator called me after another closing, “We have no record of the earnest money.” Again, it was $5000, and should have been in the office 40 days ago. I asked if she was calling just to give me a heart attack. Nope, no EM. I left a voicemail for the agent, the lender told me that his company doesn’t need to verify EM on a conventional loan. So I called his accounting department. They had no record either, and left a strong email for the agent, ‘We have no record. Where is the EM, get the EM.” Again, the agent never saw, collected, or delivered the check. He assumed the buyer sent it. The buyer still had it because he never asked for it.
And the lesson would be: the buck stops here. It is my obligation to make sure that the EM is collected and delivered to where we agreed it would be.
Several things have happened: 1. I’ve changed my check list to include tracking earnest money, 2. My title company is asking every closing to verify that earnest money cleared, 3. My broker is auditing files as they come in. What is shocking is the no one was watching the earnest money. Not me, not the selling agent, not the title company, not the accounting department, not even the lender. They all will be from now on.