When a buyer makes an offer to purchase real property, often the buyer will pay to an Attorney or Real Estate Broker a certain amount of money “down” at the time of the offer. These funds are known as “earnest money” and show that the buyer is serious and acting in good faith in making the offer. If the file proceeds to closing, the earnest money is credited to the buyer and reduces the amount of money that the buyer must bring at the end of the transaction. However, if the parties decide to cancel closing, or if they are unable to close, then the question arises about how to deal with these held funds.
In most cases when the file terminates, the parties will agree to sign a termination agreement canceling the contract and directing how the earnest money should be distributed. But sometimes, the parties cannot agree on how the funds should be disbursed. In these cases, the North Carolina General Statutes outline how the funds should be handled.
According to N.C. General Statute §93A-12, the Attorney or Real Estate Broker holding the funds must first give notice to the disputing parties. The notice must say that the funds are to be deposited with the Clerk of Superior Court in the county where the property is located and that the disputing parties may initiate a special proceeding with the Clerk of Court to recover the disputed monies. The notice must be given either by hand-delivery directly to the buyer and seller or by first class mail to the parties’ last known addresses.
If there has still been no resolution after 90 days, the Attorney or Real Estate Broker deposits the funds with the Clerk of Superior Court and files a Certificate of Notice and Deposit of Disputed Monies. At that point, if the parties want to recover the funds then they must file a special proceeding. The Clerk then acts as a judge to determine the rightful ownership of the funds and distributes them accordingly. If no special proceeding is filed and one year passes since the money was deposited, the money is deemed unclaimed and the Clerk of Court will deliver the funds to the North Carolina State Treasurer in accordance with the Unclaimed Property Act (Chapter 116B, Article B).
If you are in a dispute over earnest money, are considering canceling your real estate transaction, or holding funds that are in dispute, it is important to know what your rights and responsibilities are. Your closing attorney can answer any questions regarding your earnest money and can advise as to the best way to handle any potential dispute.
Published by Emily Price on February 20, 2019.