A broker is holding earnest money deposits in a trust account for three separate transactions. The seller in the Alvarez transaction demands that the broker immediately release the $3,000 deposit to her, claiming the buyer has defaulted. The buyer disputes the default and has not consented to the release. Under New York DOS regulations, what is the broker's correct course of action?
Correct Answer
B) Retain the funds in the trust account and interplead them with a court or follow the dispute resolution procedure specified in the contract, since both parties have a claim
Under NY DOS regulations, a broker holding disputed earnest money may not unilaterally release trust funds to either party when there is a good-faith dispute over entitlement. The broker must retain the funds in the trust account and either follow the dispute resolution mechanism specified in the purchase contract or, if no mechanism resolves the dispute, interplead the funds with a court of competent jurisdiction. Unilateral release to either party without the other's consent or a court order exposes the broker to disciplinary action and potential liability.
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