When does an EMD have to be deposited?
The deposit must occur within five business banking days following ratification unless otherwise agreed to in writing by the parties (this will come up in a later question).
18 VAC 135-20-180(B)(1)(a). Maintenance and management of escrow accounts:
“Purchase transactions. Upon the ratification of a contract, earnest money deposits and down payments received by the principal broker or supervising broker or his associates must be placed in an escrow account by the end of the fifth business banking day following ratification, unless otherwise agreed to in writing by the parties to the transaction, and shall remain in that account until the transaction has been consummated or terminated.”
I had to deposit some of my own funds into my escrow account to meet the account minimum to open it. Is that legal?
You may keep enough of your own funds in an escrow account to avoid bank charges, keep it active, meet minimums – etc., so long as you keep separate account of those funds (and make periodic withdrawals of any excess every 6 months).
We are dealing with a short sale and the seller and buyer want to delay depositing the EMD until the lender approves the deal. Is that ok?
Yes, remember parties can agree to a deposit date other than the standard five business banking days following ratification. Virginia REALTORS®’ Short Sale Addendum to Residential Contract of Purchase contains language below to meet this preference:
The parties agree that the earnest money deposit will be deposited in Escrow Agent’s escrow account (check one):
___ within five (5) business banking days after the date this Contract is fully ratified by Purchaser and Seller; OR
___ within ___ days after delivery by Seller to Purchaser of notice of lien-holder approval of this Contract.
Is an EMD necessary for contract formation?
No. The failure of a buyer to deliver an EMD does not mean there is no contract. It means that the buyer is in default, and seller will have all rights against the defaulting buyer.
The mutual promises in the contract are ample consideration to form a binding agreement.
Please note that the scenario above refers to the Virginia REALTORS® contract. Other contracts in use in Virginia may require the EMD for ratification.
Many agents like to put in the contract that the earnest money will be paid "upon ratification." If the buyer delays getting the check to us and we cannot deposit the check within 5 days of ratification, are we in violation of VREB regulations? Also, are postdated checks okay if disclosed to the seller?
If the buyer delays beyond the 5 days, the only issue is: What did the contract say was the status of the EMD? If it says the buyer has made a deposit that is being held by the escrow agent, then there is a material misrepresentation in the contract, and VREB will likely come down hard on the agent. If the contract is ratified without the agent having the EMD, or with a post-dated check, or with a check in the mail, or whatever the case may be, the contract needs to reflect exactly that status. Don’t say you have a deposit if you don’t, and if it’s post-dated or on the way say that in the contract.
I am the principal broker escrow agent; what if my agent forgets to give me the EMD within five business banking days. In other words, the funds are not deposited until the 6th day?
You must report this violation to the Real Estate Board within three business days. In fact, any escrow violation must be reported.
Please note that the Real Estate Board needs the broker to report the violation in writing either by regular mail or e-mail (email@example.com). The Board also needs to know the name of the licensee and license number, when the deposit was due, and when it was received.
Am I correct with my understanding that we only have to pay interest on earnest money deposits if the client requests it?
Whether you place the EMD in an interest-bearing account is your decision, but if you do, the contract has to state who gets the interest. If the client wants it, and you agree, you may do so.
Does a real estate licensee have to hold the EMD in a real estate transaction?
No, but if the licensee holds it he is subject to the REB regulations.
What is the Thirty-Day Letter?
A provision of the REB regulations permits a licensee escrow agent who can pay the EMD “in accordance with the clear and explicit terms of the contract” to do so provided he has notified the person not receiving the money in writing of his intent to give the deposit to the other party and hears no objection within 30 days after the notice.
The letter must be sent in a specific manner and process. Please see 18 VAC 135-20-180(B)(1)(a). Maintenance and management of escrow accounts.
What regulatory changes in 2015 were related to EMDs?
There were some significant changes to the EMD provisions of the VREB regulations:
- If the transaction is not completed, and all principals to the transaction have agreed in writing as to the earnest money deposit disposition, the funds must be returned by the escrow agent within 20 days of the agreement.
- The principal broker now must have signatory authority on all escrow accounts.
- Firms need not hold escrow funds in a Virginia bank. The other requirements for escrow accounts remain (federally insured, in firm name, etc.)
- Application deposits are defined and must be placed in escrow by the end of the fifth business banking day following approval of the rental application by the landlord unless all principals to the lease have agreed otherwise in writing.
- Statutory interpleader options for disbursement and foreclosures are explained.
- Disbursement options at foreclosure are incorporated in the regulations.
- The regulations clarify that unless the principals agree in writing, prepaid rents and funds paid to the licensee in connection with a lease must be deposited in escrow within 5 business banking days of receipt.
- The regulations provide a new list of prohibitions that reflect current practice:
- A licensee shall not submit copies of the same earnest money deposit check with multiple offers.
- A licensee shall not represent in offers he received the earnest money deposit when he has not or he knows the check is worthless.
- A licensee shall not misrepresent who is holding the EMD.
- Licensees have an obligation to submit deposits to their brokers in a timely manner. This is a specific obligation of licensees.