Who holds my real estate deposit?
Traditionally, in a real estate transaction, the listing brokerage holds the buyer’s deposit once a contract has been signed.
However, we’ve seen a trend in the industry over the last couple of years for title companies to be put in charge of the funds.
Why the change?
It’s probably one of 3 things.
The listing brokerage doesn’t have an escrow account. Louisiana laws are quite clear that if a brokerage is going to hold a deposit, it must be in a separate, non-interest bearing bank account. Many brokerages are simply opting out of having an escrow account to hold this money.
The listing agent doesn’t want to be on the hook for remembering to bring the deposit check to closing. Plenty of closings have been delayed because the listing agent completely forgot to get the deposit funds from their broker.
The buyer agent prefers to have the title company hold the money in the event that the contract is cancelled. Title companies generally are quick with the turn around on a deposit refund when a deal goes south.
Why is this a bad idea?
In the event that a contract is cancelled, but there is a dispute about whether the buyer or the seller will receive the deposit funds, the broker holding the money has rules to follow.
Basically, they can either interpret the contract and disburse funds after notifying all of the parties OR they can place the funds into the registry of the court for a concursus proceeding (which decides who gets the deposit).
If the deposit is held by a title company, these requirements do not apply and the Louisiana Real Estate Commission may not have jurisdiction over the third party holding the funds. This can result in a buyer or seller receiving money that they are not legally entitled to.
What is the Louisiana real estate commission doing about this?
Beginning in January 2019, there will be an addendum to the purchase agreement that must be used if a title company is going to hold a deposit. It requires both buyer and seller to acknowledge that if a title company holds the deposit, there’s nothing your agent or the real estate commission can do if there’s a dispute and the title company releases the funds.
The bottom line
Have all funds held by licensed broker. If you’re a buyer and the listing broker doesn’t want to hold the deposit, have your agent request that their own brokerage hold it. The convenience of using a title company will never offset the risk of having your deposit released to the wrong person.