By Lydia Blair
The Texas Real Estate Commission (TREC) recently updated the standard residential contracts to now address policies regarding deposits of earnest monies. These changes become mandatory May 15, 2018.
On the first page of the newly updated Texas contracts, it states that “Within 3 days after the Effective Date, Buyer must deliver $___ earnest money to ___, as escrow agent, at ____.” Previous TREC contracts did not have a deadline for delivering earnest money except to say it was due “upon execution of this contract.” Simultaneous delivery of the contract and earnest money didn’t always happen. Now it is clear.
The changes also include these words:
“If Buyer fails to deliver the earnest money win the time required, Seller may terminate this contract or exercise Seller’s remedies under Paragraph 15, or both, by providing notice to Buyer before Buyer delivers the earnest money. If the last day to deliver earnest money falls on a Saturday, Sunder, or legal holiday, the time to deliver the earnest money is extended until the end of the next day that is not a Saturday, Sunday, or legal holiday. Time is of the essence for this paragraph.”
Those bold letters are in the contract, not my addition. The same wording was added to the condo contract form, vacant land form, and new construction.
When it says ‘time is of the essence,” it means we’re not kidding. Don’t miss this deadline or you’re in trouble. The seller’s remedies under Paragraph 15 include all kinds of unpleasant things that a buyer doesn’t want to tackle. Things like ‘specific performance’ and liquidated damages.
Keep in mind that earnest money must be delivered to the title company in the form of funds that will be accepted. Remember my article about ‘good funds’? You’ll need a wire transfer, cashier’s check, certified check, money order, personal check, or cash. All checks must be cleared before the amount becomes ‘good funds.’
If a third party deposits the earnest money on the buyer’s behalf, they must sign a Third Party Deposit form. The buyer’s lender can be informed of who made the earnest money deposit and the third party must acknowledge that they are not placing a lien against the property to secure re-payment of the funds. If the deal falls through, the third party doesn’t get the earnest money. The buyer or seller are the ones who receive the earnest money.
You know these kinds of changes wouldn’t be made and these rules wouldn’t apply if there weren’t incidents where things have gone wrong, an innocent party has lost money or similar disputes keep popping up in court.
When it comes to earnest money, remember that the title company and escrow agent are a neutral authority with duties to both buyer and seller. They follow the instructions of the contract. Get your earnest money to the title company with care and timeliness.
The opinions expressed are of the individual author for informational purposes only and not for the purpose of providing legal advice. Contact an attorney to obtain advice for any particular issue or problem.