A multi-tip review of the Proposed Tennessee Real Estate Commission Regulations- part 3 of 15
New Rule 1260-2.09 deals with deposits and earnest money. The new rule reads as follows:
Rule 1260-2.09 Deposits and Earnest Money is amended by deleting the text of the rule in its entirety and by substituting instead the following new language so that as amended the rule shall read:
(1) Each broker shall maintain a separate escrow account for the purpose of holding any funds which may be received in his fiduciary capacity as deposits, earnest money, or the like.
(2) An affiliate broker shall pay over to the broker with whom he is under contract all deposits and earnest money immediately upon receipt.
(3) Brokers are responsible at all times for deposits and earnest money accepted by them or their affiliate brokers.
(4) Where a contract authorizes a broker to place funds in an escrow or trustee account, the broker shall clearly specify in the contract:
(A) the terms and conditions for disbursement of such funds; and
(B) the name of the person or entity who will actually hold such funds.
(5) A broker may properly disburse funds from an escrow or trustee account:
(A) upon a reasonable interpretation of the contract which authorizes him to hold such funds;
(B) upon securing a written agreement which is signed by all parties having an interest in such funds, and is separate from the contract which authorizes him to hold such funds;
(C) at the closing of the transaction;
(D) upon the rejection of an offer to purchase, sell, rent, lease, exchange, or option real estate;
(E) upon the withdrawal of an offer not yet accepted to purchase, sell, rent, lease, exchange or option real estate;
(F) upon filing an interpleader action in a court of competent jurisdiction; or
(G) upon the order of a court competent jurisdiction.
(6) Funds in escrow or trustee accounts shall be disbursed or interpled in a proper manner without unreasonable delay and not longer than thirty (30) days after receipt of a written demand from any party to the transaction. A broker may continue to hold such funds beyond thirty days only if the broker obtains an agreement signed by all parties to the transaction permitting the broker to continue to hold such funds in escrow and such agreement:
(A) Clearly provides that the broker may interplead the funds at any time regardless of any other term contained in the agreement; and
(B) Contains a definite termination date upon which the broker shall disburse or interplead the funds.
(7) No postdated check shall be accepted for payment of a deposit or earnest money, unless otherwise provided in the offer.
(8) Earnest money shall be deposited into an escrow or trustee account promptly upon acceptance of the offer, unless the offer contains a statement such as “Earnest money to be deposited by...” to indicate how such funds will be handled pending the closing of the contract.
(9) Interest bearing escrow accounts are neither required nor prohibited. If used, however, the following guidelines shall be observed:
(A) The licensee shall disclose to the payor that his funds will be placed in an interest bearing account;
(B) As a depositor of the funds, the licensee does not own the funds or any interest earned thereon until properly disbursed to the licensee;
(C) The licensee and payor shall execute a written agreement indicating the manner of disposition of interest earned; and
(D) The licensee shall keep a detailed and accurate accounting of the precise sum of the interest earned for each separate deposit.
Authority: T.C.A. 62-13-203, 62-13-208, and 62-13-321.
Note important changes to the existing rule in subsection (6), which mandates that a broker disburse or interplead the funds into court without unreasonable delay and no later than 30 days after written demand from any party. If not interpled into court, you must make sure you have a written release from all parties
The broker can hold funds longer than 30 days if the other requirements of the rule are met.
Also note that interest bearing escrow accounts are allowed if specific requirements are met.