A Michigan broker, James, holds earnest money for a transaction that fell through due to buyer default. The seller verbally tells James to release the funds to her. The buyer has not responded to James's communications for three weeks. The purchase agreement is silent on the procedure for disbursing earnest money in the event of a dispute. James is worried about his license. Which action best protects James under the Michigan Occupational Code?
Correct Answer
D) Deposit the disputed funds with the court through an interpleader action and notify LARA of the dispute
When a broker holds disputed earnest money and cannot obtain a written agreement from both parties authorizing disbursement, the safest course of action under the Michigan Occupational Code (MCL 339.2512) is to file an interpleader action—depositing the funds with the court and letting the court determine the rightful recipient. This action protects the broker from liability for improper disbursement. Additionally, notifying LARA of the dispute demonstrates transparency and compliance with the broker's duties. The buyer's non-response does not authorize the broker to unilaterally release funds to the seller.
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Related Topics & Key Terms
Key Terms:
Related Concepts
Novation is the substitution of a new contract for an existing one, or the replacement of one party with a new party, with the consent of all parties involved. The original party is completely released from all obligations.
Offer and acceptance is the process by which one party proposes specific terms for a contract and the other party agrees to those exact terms, creating mutual assent. This mutual agreement, also called a meeting of the minds, is an essential element of every valid contract.
An option contract gives one party the exclusive right, but not the obligation, to purchase or lease a property at a specified price within a specified time period. The buyer pays option consideration to keep the option open.
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