Whether you’re a first time home buyer using an FHA loan, or a cash investor buying your 20th property it is going to be expected that you put up an earnest money deposit.

Your earnest money (or EMD in a world that abbreviates everything we type into an email) Is your money, but it is placed into escrow at the time your offer is accepted.

In a traditional real estate market we always had the earnest money held buy the buyer’s broker on the transaction. On bank owned properties it is common practice that the deposit be held by the listing broker.

The fact is that whether you are the buyer or the seller it does not matter where the earnest money is held, it is closely regulated and what happens to it is the same in either case.

The broker can release money from their escrow account only under specific situations:

  1. A mutual released signed by both parties to the contract outlining where the money will go.
  2. Maryland law gives the broker the right to notify both parties in writing who they feel is entitled to the money and then disperse if neither objects to the brokers letter.(I have been advised by both attorney’s and judge’s that the latter is a bad idea. It’s been our office policy not to do this under any normal circumstances since the law was passed. In fact, I have only come across one broker that does this in the entire state.)
  3. The broker can turn the earnest money over to the court and let them decide but court costs are usually greater than the escrow value.
  4. A settlement takes place and the new buyer owns the home. So, a release, a HUD1, or a court order is the only way money comes from the escrow account.

The real estate commission can’t make a broker release escrow funds and even has on their webpage a note to consumers to not contact them about earnest money disputes. There is however a process for buyers or sellers to pursue the earnest money should the buyer and seller not agree to a release.

The Bottom Line

If you are in a dispute over your earnest money don’t spend a lot of time going after the broker as you are just spinning
your wheels. A complaint to the real estate commission is simply telling the real estate commission that the broker is behaving appropriately and following state laws… File for mediation. Then if mediation is unsuccessful you can take the other party to court (be it Harry Homeowner or an institutional seller) and the judge will decide who breached the contract and who didn’t.

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