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PAR Just Listed ~ Pennsylvania Association of Realtors Updates

Releasing deposits when a dispute exists

It is familiar territory.

A transaction based on a properly executed Agreement of Sale fails to settle. For any number of good or bad reasons, the parties do not agree on the distribution of the buyer’s deposit funds that are held in escrow. What to do?

When an escrow dispute exists, the resolution will come in one of several ways. The parties may ultimately reach an agreement, whether on their own accord or facilitated by mediation that is required by the Agreement of Sale. A successful mediation will result in a release that states where the deposit is to be paid.

If the parties are unable to resolve their difference amicably, entitlement to the deposit may be established by a court of competent jurisdiction. If the deposit is less than $12,000, a magisterial district justice may hear the case, or disputes of any amount may be filed in the court of common pleas.

But what is a broker to do with deposits in disputes that are not amicably resolved or resolved via litigation? Until about eight years ago, the broker could do nothing and for that reason, brokers held disputed deposit monies for so long that the disputants were dead, untraceable or long forgotten. Fortunately, PAR successfully lobbied a change to RELRA that provided a path to the distribution of disputed deposit funds.  For the first time, a broker could release deposit funds to a party or parties, even though the parties had not come to an agreement and where no final order of court had issued.  The provisions found at Section 608.5(a)(2)(ii) allow a broker to disburse disputed deposits where there exists “a prior agreement in writing or electronic form as to disposition of the deposit or other escrows in the event of a dispute regarding entitlement to the deposit or other escrows.”

A “prior agreement” means an agreement executed by the buyer and seller before any dispute arises having to do with the deposit money. For all practicable purposes, the best time to pre-agree is at the signing of the Agreement of Sale when everyone is in love, or at least happy enough, to sign an agreement.

The pre-agreement contemplated by this section of RELRA is left to the imagination. Fortunately, PAR’s Standard Forms Committee has a good imagination and drafted a boilerplate pre-agreement for you. It appears in PAR’s Standard ASR at Paragraph 26(C) and is the one you are (hopefully) familiar with.

In short, this provision says that if the parties don’t reach some other agreement over distribution the deposit will be returned to the buyer, but it requires a lapse of time before any disbursement can be made. The standard agreement provides, as a trigger date, the passage of 180 days from the settlement date stated in the agreement (as amended by written extensions) or from the termination of the agreement, whichever is earlier. But some buyers will want to shorten this time to trigger the release in a shorter time – perhaps 90, 60, or even 30 days. Is that legal? Yes; RELRA doesn’t dictate what’s in that prior agreement. But is it wise? Perhaps not.  Even though disbursement under this provision of the Agreement of Sale does not resolve the dispute and allows one party to sue the other after disbursement of the deposit, a quick disbursement to the buyer can disadvantage a seller and lead to a rift between the listing agent and seller.  In order to preclude the deposit from being disbursed after the stated time, seller has to initiate mediation or suit in a manner that is verifiable (copy of the request for mediation or the papers that are initiate the suit).  Thirty days hardly provides the seller with a comfortable space within which to initiate mediation or litigation, especially since much of that time may be lost in endeavoring to negotiate a resolution short of mediation or litigation

Once the stated time passes and the buyer submits a written request for the deposit monies, what options does the broker who is holding the escrow have?  Can the broker, usually the listing broker, notify the seller and suggest that in order to prevent payment of the deposit to buyer that seller should initiate mediation/litigation?  Must the broker wait 30 days following receipt of buyer’s written request to disburse the deposit or may the broker disburse it immediately upon receipt of buyer’s request?

How long the broker holds the money following receipt of buyer’s written request for distribution is easily answered. Our agreement provides that after receipt of buyer’s request, broker will, within 30 days of receipt, distribute the money to the buyer unless the broker receives notice of litigation. Based on this language, the broker would not be liable for disbursing the money in less than 30 days from receipt of buyer’s written request.  The broker can wait until near the end of that period before shipping it out to the buyer, or can do so earlier. Keep in mind that the disbursement of the deposit made under this provision of the Agreement of Sale does not ultimately resolve the question of who is legally entitled to the deposit. Even after disbursement, buyer and seller have the right to sue the other.  For this reason, there is nothing wrong with the listing broker notifying seller of broker’s receipt of the 30-day notice from buyer and suggesting that the seller, in order to keep the funds in escrow, must initiate suit or mediation. While it may be a helping hand to the seller, again, it doesn’t ultimately resolve the question of entitlement and no harm is done.

A good practice for the broker is holding the deposit to contact the seller (or seller’s agent if the escrowing broker is a buyer agent) to determine whether mediation or litigation has been initiated.  If so, the broker should seek written verification.

To date, I am not aware of a single occasion where a seller sued the escrow holding broker for disbursing funds to a buyer under PAR’s provision, and I don’t expect to. Why would a seller sue the listing broker for making a disbursement pursuant to the provisions of an agreement when the seller has, as an available defendant, the buyer who has received a deposit that, pursuant to the agreement and the facts of the case, is rightfully seller’s?

Handling disputed deposits is not terribly complicated. It does, however, require knowledge of RELRA and your Agreement of Sale.  If you are still confused, there is always the hotline.

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Realtors®: proposed tax reform will hurt homeowners and lower home values

Sixty Realtors® from across the country representing the National Association of Realtors® met with key U.S. representatives this week to urge members to oppose the proposed federal tax reform bills. The bills will hurt homebuyers and homeowners, eroding incentives to buy and lowering home values an average of 10 percent.

Yesterday, the House of Representatives passed H.R. 1, the “Tax Cuts and Jobs Act,” a bill National Association of Realtors® President Elizabeth Mendenhall has called an all-out assault on homeownership.

An interactive map created by NAR shows how home values are expected to drop in individual congressional districts, ranging from $12,000 to $26,000 in Pennsylvania.

“I urge every Pennsylvania Realtor® to respond to NAR’s Call-for-Action today and let your senators know that this tax reform bill will harm homeowners and potential buyers,” said PAR President Kathy McQuilkin. “Not only will homeowners see an increase in their taxes, but they’ll see devastating drops in their homes’ values. We can’t stress strongly enough how catastrophic this will be in many of our markets.”

Doylestown Realtor® Andy Donohue and Suburban Realtors® Alliance President/CEO Jamie Ridge met with Rep. Brian Fitzpatrick to discuss the bill and how eliminating the state and local tax deductions will be harmful to Pennsylvania homeowners. The conversation focused on the unintended consequences of eliminating the mortgage interest deduction incentive for homeownership could have for communities.

Realtor® and past PAR President Greg Herb from Gilbertsville and Ridge met with Rep. Ryan Costello. Herb said Realtors® are at the forefront of advocating for homeowners and carried the message about how this tax reform will adversely affect middle-class property owners to legislators. Only five percent property owners will be able to take advantage of the mortgage interest deduction with the current proposed tax reform bill.

Allentown Realtor® Chris Raad and Matthew Marks, government affairs director for the Greater Lehigh Valley Realtors® and the Pocono Mountains Association of Realtors®, met with Rep. Charlie Dent. They emphasized the importance of protecting the real estate industry and not to put the burden of tax reform on the backs of middle class homeowners.  Raad said, “We wanted Congress to know that defending middle-class homeowners isn’t a ‘special interest,’ it’s a common interest.”

Millions of middle-class Americans would see a tax hike if the current tax proposals move forward. A tax-reform plan with a nearly doubled standard deduction, a loss of personal exemptions and the elimination of deductions, such as the state and local deduction, would deliver an average tax increase of $815 on middle-class homeowners. The loss of deducting student loan interest and moving costs will also deter consumers from buying a home.

Lancaster Realtor® Glenn Yoder met with Rep. Lloyd Smucker and addressed to concerns that the Realtors® have about the tax reform bill and will continue a dialog as changes are made to the final product.

NAR has provided a comparison of House and Senate tax legislation on NAR.realtor.

Jamie Gregory, NAR’s deputy chief lobbyist, told The New York Times, that they found in their meetings a “resignation that this bill is going to pass the House.” But, he added: “There’s a long way to go. There’s still the Senate, there’s still a conference committee, there’s still a chance to make this better.”

To respond to NAR’s Call-for-Action, visit PARealtor.org.

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How homeowners are preparing to grow old in their homes

While some homeowners choose to downsize or move to an assisted living facility as they age, many wish to remain in their homes for as long as they can.

How can homeowners prepare their homes to be accessible to them as they grow older? HomeAdvisor recently released results of their annual survey, and learned, most importantly, homeowners do not like the term “aging in place,” even as they update their homes with features to assist them as they grow older in their properties.

The most common issue aging homeowners faced in their homes is tripping or falling, resulting in injury, according to 41 percent. Thirty-seven percent said it took them longer to do simple tasks, thanks to steps and high cabinets, and 36 percent reported they had to rely on others to do daily activities.

The majority of homeowners 75 and older (46 percent) renovated their home in anticipation of their needs as they aged, while 23 percent reported they stayed in their home without renovating, due to time and/or expense. The most popular projects for homeowners in this age group include replacing appliances, adding pullout shelves in kitchen cabinets and changing doorknobs to lever handles. Less than one-third reported having difficulties in their homes as they have aged.

For those 55 to 75, the most popular projects were adding pullout shelves to kitchen cabinets, changing doorknobs to lever handles and changing tile or stone to wood or carpet.

About 60 percent of respondents aged 55 to 75 said they had seen a loved one have difficulties in their homes as they grew older, leading many of them to begin making changes in their homes.

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