A Washington buyer and seller enter into a purchase and sale agreement with a $50,000 earnest money deposit. The contract does not include a liquidated damages clause. The buyer defaults without contractual justification. The seller elects to sue for specific performance rather than retaining the earnest money. While the lawsuit is pending, the listing firm is holding the earnest money in its trust account. The buyer demands that the listing firm return the earnest money immediately. What must the listing firm do?
Correct Answer
C) Retain the earnest money in the trust account until the lawsuit is resolved or both parties agree in writing to a disbursement
Under RCW 18.85 and WAC 308-124D, when a dispute exists — including an active lawsuit — the listing firm must retain the earnest money in its trust account until the dispute is fully resolved. The seller's election of specific performance as a remedy does not automatically entitle the buyer to a return of the earnest money, nor does it entitle the seller to receive the funds while the lawsuit is pending. The existence of active litigation is itself a form of unresolved dispute that requires the broker to hold the funds. Release requires either a mutual written agreement or a court order directing disbursement.
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Related Topics & Key Terms
Key Terms:
Related Concepts
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.
A purchase agreement is a legally binding contract between a buyer and seller that outlines the terms and conditions for the sale of real property. It is also commonly called a sales contract, purchase and sale agreement, or earnest money agreement.
Specific performance is a court-ordered remedy that compels the breaching party to fulfill their obligations under the contract rather than simply paying monetary damages. It is an equitable remedy used when monetary damages would be inadequate.
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