The Oregon Real Estate Agency just made it easier for brokers to avoid being caught in the middle of disputes over clients' trust account funds. For those that continue to use clients' trust accounts, new rules relating to these accounts may impact how these brokerages deal with disputes over earnest money funds.
Historically, in the absence of an agreement by the parties as to how earnest money is to be disbursed in failed transactions, brokers or the parties have looked to the courts to decide whether funds should be returned to the buyer or disbursed to the seller. In some instances, brokers have made their own judgment calls as to how earnest money should be disbursed, with the attendant risk of a court deciding differently. Consequently, brokers have been reluctant to release disputed funds. The Oregon Real Estate Agency (the “Agency”) has adopted regulations which allow brokers to return disputed clients' trust account funds to the delivering party (ie, buyer), without making any risky judgment calls.
You may remember that in a previous article, we discussed changes to ORS Chapter 696 which impact your licensed professional real estate activities. In the new provisions, which became effective January 1, 2006, the Agency was required to
(E)stablish a procedure for disbursal of disputed funds from a Clients' Trust Account to the person who delivered the funds to the sole practitioner or principal real estate broker. The procedure shall allow disbursal not more than 20 days after a request is made for the disbursal. Any disbursal pursuant to the procedure does not affect the claim of any other person to the funds.
In order to establish a procedure by January 1, 2006, the Agency suggested rules, allowed the public to comment on the rules, and implemented a set of temporary rules effective January 1, 2006. These rules will remain in effect until the earlier of June 29, 2006 or the Agency adopting permanent rules after having closed its comment period on January 20, 2006.
OAR 863-015-0186, the temporary rule addressing clients' trust accounts, states that, upon receipt of a written demand for disbursal of funds in a clients’ trust account, “;the sole practitioner or principal real estate broker must inform all parties to the contract that a party has made demand for disbursal of such funds.” If a party disputes this demand, the broker may avoid being involved in the dispute and avoid potential liability by disbursing “the disputed fund to the person who delivered the funds within 20 days following the date of demand.” However, the broker must provide written notice to all parties that states the following: 1) one party made a demand for funds and the broker may disburse the funds to the party delivering the funds within 20 days following the date of the demand; 2) the parties may wish to seek legal advice; 3) if the parties to the contract enter into a written agreement regarding the disbursal of funds, the broker will disburse the funds in accordance with the agreement; 4) the broker has no legal authority to resolve questions of law or fact regarding the disputed funds; 5) if a party files a legal claim to the disputed funds and provides proof of such claim to the broker, the broker does not have to disburse the funds; and 6) the broker is no longer responsible for the disputed funds once they are disbursed to the party who delivered the funds.
In the absence of an agreement, the broker may disburse the funds to the party who delivered them in accordance with this temporary rule without any additional liability, which will address a long-standing problem.
This column contains general information only and must not be construed as legal advice.
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