An Escrow Dispute - Every Realtor's Nightmare

One of the things that makes my career in Real Estate interesting is that "everything is changing or evolving". Over the years the market changes. One year it's a buyers' market and then a sellers' market.  The giant wheel of real estate.   It keeps rolling along, year after year.

Each month brings new clients buyers and sellers.   New state laws effect our business and not to mention our Realtor Code of Ethics.  Everything changes, and improves for the better.  And for me,  this includes my professional growth.  As a professional, we always have a transaction that "teaches us" lessons.   Lessons that are learned the HARD WAY.

I have just resolved a stressful situation (transaction) and wanted to share the experience.  It's called an ESCROW DISPUTE.

This is my very first escrow dispute.....ever.   I represent the buyers in this transaction.   They are what I consider A+ clients.  I have done multiple transactions for them, their family, and they refer thier friends to me.   It's been a great working relationship.  I value them as clients.

Let me share the saga that we have been involved in since August 11th, 2008.

On August 11th, I sit in my office with my clients and write an offer on a home in NW Gainesville.  My buyers are excited and happy with their choice.  We do not use the standard FAR/BAR contracts in our MLS/Board of Realtors.  Our MLS/Board has it's own contracts.   Also, my broker of record "RE/MAX Professionals, Inc." does NOT hold it's own escrows.  All binders/escrows collected are held by a local title company.   My clients deposit a $ 3,000 binder for an offer on a home priced at $ 189,900.

After a bit of negotiation, we now have an accepted contract dated 8/12/08 and it is "contingent" upon:

1. Inspections within 10 days
2. Appraisal
3. Final Mortgage Approval - Buyer already pre-qualified
4. Sellers must provide buyers with a  "sellers disclosure statement" prior to home inspection.

On Friday August 15th, I meet my buyers and the inspector at the home.   The inspection does not go well.  The inspector alerts the buyers as to several items that need their attention.  The roof is the original roof -  16 years old, though not showing leaks.  But the flat roof over the patio is the original also and has a much shorter life expectancy.  The inspector says it's in bad shape.  I called a reputable roofer, and he comes over and takes a look also.   He provides a written quote to replace the patio roof.   The gas fireplace does not have a "shut off" valve and this is a BIG safety issue.  The inspector comments that the building codes required that, and can't understand how a fireplace has no shut off value.  Other items on the inspection that worried the buyers are 1) master shower will not drain   2) slow drain causes water on bathroom floor -is this a shower pan problem?  3) The entire home is plumbed with Polybutylene tubing  (not copper or PVC).  This type of plumbing was outlawed and has deterioration & failure history/lawsuits etc.,  and 4) wood decay on exterior siding .  I called the listing agent after the inspection and told him of items that will be on the inspection report.  The listing agent said the sellers wouldn't fix anything prior to closing, as they have moved out of town; and I told him that my buyers will want repairs done before closing.  I start to worry - a habit of mine.

My buyers discuss all issues with the inspector, consult their family, and look to me for advice. We prepare our formal "Repair Request Addendum" that is required by our MLS/Board Contract.    Our contract provided $500 limitations for necessary repairs in the 3 categories  1) structure  2) systems 3)wood/termite.   My buyers knew that the list of repairs they are asking for exceeds these amounts.  The Repair Request Addendum is signed and presented to the sellers agent with the full inspection report on August 18, 2008.

The sellers formal/written "response" to the repair addendum arrives on 8/20/08 in which their attorney (in Miami) denies any problems with the home, but will offer a $3,000 "concession" at closing and will make no repairs prior to closing.  

As per our contract.....once buyers get the sellers' response, they have 24 hours to accept or cancel the contract.  So, in six hours we have obtained quotes for wood repair, a re-piping specialist, roofer,  the gas company, a regular plumber.....whew it was tough.  But, it all helped my buyers decide that they did not want to proceed and absorb the additional costs for these repairs.   Their concern was the "unknown".   If a repairman comes to do a repair (after the closing) and then discovers other unknown issues.......more worries.

So my buyers' biggest issue was $3,000 concession would not cover the repairs and they wanted everything done PRIOR to closing.   So, their only choice was to abide by our written contract which states:

"BUYER shall have one (1) day from receipt of such notice in writing, either to agree to complete the purchase without the escess costs being paid by the Seller OR elect to terminate this agreement in which event the BUYERS' binder deposit shall be returned to BUYER."

On 8/21/08 we prepare, sign and deliver a letter regarding the Termination of the Contract and Binder Release.  

NOW the problem:  The sellers and their attorney refuse to sign our "Binder Release" and claim that my BUYERS are in default and lose will the $ 3,000 binder !!!   My buyers are upset, I am upset, my broker of record is upset,  the listing agent tells me to talk to the sellers' attorney, and everyone is upset.   My opinion is...my buyers are right and the sellers' attorney is wrong. 

I sent a very professional, detailed letter to the sellers attorney pointing out all "legal" aspects of our MLS/Board Contract and Repair Addendum. My big broker says it was a great job.   The emails go back and forth. The days tick by.....wait, wait, when will this get resolved??   My buyers have contacted a local real estate attorney here in Gainesville that assures them that they are entitled to their full escrow back.  And luckily, the escrow will NOT be governed by FREC- it's held by a title company, not the broker.   They may have to file in court to get their binder released via an interpleader action.  That was the new word of the month.....  Interpleader.    It has been a stressful ordeal.  Now I feel like I need a law degree.

It doesn't sound like a long time.....but between August 15th and September 9th.....it's felt like an eternity to my buyers.   It was frustrating.  It was aggravating.  It was a perfect example of attorneys talking down to real estate agents.  It was a perfect example of people not "reading" and "understanding" a contract. It was a perfect example of the agony of an ESCROW DISPUTE.   Even if you know you are right.....it will take time to resolve....and may cost money. My buyers kept asking, "why can't we get our escrow back?"  And the answer to that is we need their signature on a form called an escrow release.  And if they won't sign it....you have to fight for your own money.  It will make you lose sleep, it will cloud your brain, and it is stressful.  

BUT TODAY...........  SUCCESS !!

Late this afternoon, I receive via fax .... a signed escrow release from the sellers showing that my buyers will receive their binder back.

HOORAY !!

LESSONS that I have learned from all of this:

1. Make a smaller escrow/binder up-front and offer additional binders "after" inspection contingentcy is cleared by all parties.
2. As a Realtor, pay more attention to the "type" of plumbing in all homes (prior to writing a contract).
3. Do not write any offers on a home without have the sellers disclosure forms - ever!
4. Never assume the condition of a home, no matter how visually beautiful it looks.
5. I will use stronger "contingency clause"  as to a buyers "approval & acceptance" of any and all inspection reports.
6. Never expect the other Realtor to help resolve a problem or advise their own clients.
7. Develop a relationship with a good real estate attorney in town - that can help when needed.
8. If your Board of Realtors does NOT use the standard FAR/BAR forms - our FAR Legal Hotline will not even help you. They will only provide legal advice to agents that use standard FAR/BAR forms.
9. In our MLS, if a listing goes "under contract contingent upon items" it should show as "Contingent" - NOT "Pending".  

I hope that this is my ONLY experience with an ESCROW DISPUTE.

This weekend.....me and my A+ buyers can get back to finding them another home !!