Funding problems after a failed sale

In an ideal world, every transaction is successfully completed. However, it is important to prepare for the transaction not to end. In these cases, our remaining question is how to deal with escrow funds.

The shutdown procedure varies from state to state. Whether you are conducting your business in a managed or unmanaged state, you need to be familiar with the process. Most states are non-custodial; in these states, both parties to a transaction usually sign a purchase agreement and arrange a date for completion of the transaction. On the trading day, the two parties exchange all necessary documents and funds. In escrow states such as California and Arizona, the parties sign the purchase agreement (or escrow instructions) and all related documents; these documents will be kept until the deadline.

Despite the differences, there are general principles involving breach of contract that apply almost everywhere.

First of all, please make sure that your sales contract contains provisions (if any) about the escrow agent’s duties. When the two parties cannot reach an agreement on the release of escrow rights and have conflicting requirements for the funds, the escrow agent will generally not be able to release the funds to either party. The escrow agent (or broker) should not release funds unless both parties sign the release letter.

However, if you are working with a seller who wants to make a claim for escrow payments, please notify the escrow agent or broker immediately to avoid unintentional control. It is important to communicate with brokers, escrow agents and closing agents so that they know your objections to the release of escrow deposits. Make sure you carefully comply with the notice requirements of the contract.

Depending on your location, your contract may require the parties to determine the right of mediation or arbitration before proceeding with litigation to determine whether they have the right to obtain an escrow deposit. If the custodian is held by a broker, title company or attorney, the actual remedies may vary. Assuming there is no mediation or arbitration clause in your contract, or both steps have been completed, the escrow agent will usually file a lawsuit (called an intermediary lawsuit) to remove it from the dispute. The funds are therefore deposited in the court’s registry. The length of time an escrow agent may be willing to wait depends on the policy of each agent. If the parties make progress in reaching a solution, the escrow agent usually holds the funds.

Sometimes, the transaction may be interrupted when the escrow agent already holds the advance payment and funds of the lender. If the transaction is not completed, the lender usually requires the settlement agent to refund the loan proceeds. Similarly, the buyer usually refunds the advance payment paid by the buyer and is not subject to the procedures and terms outlined in the escrow agreement purchase agreement.

When filing an intermediary lawsuit, the escrow agent will usually be managed from the escrow funds to pay any attorney fees and expenses incurred during the application process. This will inevitably reduce the amount of funds that can be allocated between the two parties. Therefore, the purchase contract (common sense) instructs the buyer and the seller to strive to reach an amicable settlement to avoid the cost of litigation and other challenges.