A Connecticut listing broker received a $30,000 earnest money deposit from a buyer. The transaction failed because the seller could not deliver clear title. The buyer demanded a full refund. The seller, however, instructed the broker in writing not to release the deposit, claiming the buyer had waived the title contingency in an earlier email exchange. The broker is uncertain about the validity of the waiver. Under Connecticut law, what is the broker's correct course of action, and what risk does the broker face if the deposit is released to the wrong party?
Correct Answer
B) The broker should retain the funds in the trust account, refuse to disburse without a written mutual release or court order, and risks license discipline and civil liability if funds are released to the wrong party
Under Connecticut law, a broker who holds disputed earnest money in a trust account must not release the funds unilaterally when the parties' entitlements are genuinely in dispute. The broker's obligation is to retain the funds in the trust account and seek either a written mutual release signed by both parties or a court order directing disbursement. If the broker releases funds to the wrong party — whether by misjudging the waiver issue or otherwise — the broker faces potential license discipline by CREC for improper disbursement of trust funds (CGS Chapter 392) and civil liability to the party who was wrongfully deprived of the funds. The appropriate judicial mechanism for a broker in this situation is an interpleader action in Connecticut Superior Court, not a filing with CREC.
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Related Topics & Key Terms
Key Terms:
Related Concepts
A counteroffer is a response to an original offer that changes one or more terms of the offer, effectively rejecting the original offer and creating a new offer. The party who makes the counteroffer becomes the new offeror.
Earnest money is a deposit made by the buyer at the time of the offer or shortly after to demonstrate good faith and serious intent to purchase the property. It is also called a good faith deposit.
Equitable title is the buyer's interest in a property after a purchase contract is signed but before closing, giving the buyer the right to acquire legal title in the future. The seller retains legal title until the deed is delivered at closing.
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