Broker David holds earnest money of $15,000 in his trust account for a transaction involving seller Maria and buyer Chen. The purchase agreement fell through, and both parties signed a mutual cancellation agreement but disagreed on who should receive the earnest money — the agreement was silent on earnest money disposition upon cancellation. Chen demands the full $15,000 back. Maria demands $5,000 as compensation for her carrying costs. David's supervising broker advises him to release $10,000 to Chen and $5,000 to Maria based on the broker's own assessment of fairness. Under Minn. Stat. Ch. 82 and MN DOC rules, which action should David take?
Correct Answer
C) Retain all $15,000 in the trust account and require a written agreement signed by both parties specifying the disposition, or interplead the funds with a court if no agreement is reached
Under Minn. Stat. Ch. 82 and MN DOC trust account rules, a broker may not disburse disputed earnest money based on the broker's or supervising broker's personal assessment of a fair split. When a mutual cancellation agreement is silent on earnest money disposition and the parties disagree, the broker must retain the funds in the trust account until either (1) both parties provide written instructions agreeing on the disposition, or (2) the dispute is resolved through litigation (interpleader or court order). The supervising broker's opinion does not constitute legal authority to disburse.
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Related Topics & Key Terms
Key Terms:
Related Concepts
The Statute of Frauds is a legal requirement that certain types of contracts must be in writing and signed to be enforceable. In real estate, all contracts for the sale of land or interests in land must be in writing.
A time is of the essence clause in a contract means that all deadlines and dates specified in the agreement are strictly enforceable, and failure to meet them constitutes a material breach.
An appraisal contingency allows the buyer to cancel or renegotiate the contract if the property's appraised value comes in lower than the agreed-upon purchase price. This contingency protects buyers from overpaying.
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