In the FR/Bar contract, a buyer, by default, has three days to deposit their escrow, and a broker has three days at most to deposit that escrow. But if the broker isn’t the escrow agent, the timing calculations are different – and confusing to some Realtors.
Source: Escrow Contrast: Buyer Obligation vs. Broker Responsibility
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OCTOBER 2, 2019Share this article: FacebookTwitterLinkedInShare
Escrow Contrast: Buyer Obligation vs. Broker Responsibility
By Laura Gomes
In the FR/Bar contract, a buyer, by default, has three days to deposit their escrow, and a broker has three days at most to deposit that escrow. But if the broker isn’t the escrow agent, the timing calculations are different – and confusing to some Realtors.
ORLANDO, Fla. – Purchasing a home is one of the largest financial decisions anyone can make, and escrow deposits are usually involved. Escrow deposit questions are also one of the most frequent topics we get on Florida Realtors® Legal Hotline, and justifiably so.
However, there is a crucial difference between buyers’ obligation and brokers’ responsibility when it comes to escrow deposits – and knowing the difference is important.
It’s vital to adhere to licensing law when you’re acting as an agent in a transaction. It is just as imperative for buyers to adhere to the terms of their sales contract. Sometimes, however, terms overlap and can cause confusion over an obligation under licensing law versus a contractual obligation. Remember, buyers’ legal obligation is to the contract terms and brokers’ obligation is to licensing law. The two are separate matters that should not be confused.
Here is the mix-up we hear on the Legal Hotline: Because the contract often states that a buyer’s deposit is due within three days as the default time period and brokers’ licensing law refers to a three day period regarding escrow deposits, the two obligations often get intertwined. That leads to questions about who is supposed to be doing what when.
Let’s explore what I mean.
Buyers obligation under the contract
The Florida Realtors/Florida Bar Contracts (FR/Bar) contains language within paragraph 2(a) that states “The initial deposit made payable and delivered to the ‘escrow agent’ named below … is to be made within ___ (if left blank, then 3) days after Effective Date.”
Assuming the parties leave the time period blank, which is often the case, buyers have three days to deposit their escrow. To determine how buyers should count those three days, buyers should look to the contract. Remember, time can be calculated differently in each contract so, it’s important to note that in figuring out when a deposit is due.
As we’re using the FR/Bar contracts in our example, calendar days are used for purposes of computing time. T Therefore, this contract obligates buyers to make their escrow deposit within three calendar days after the Effective Date.
Associate and broker responsibility under licensing law
A rule commonly referenced by agents and brokers has to do with depositing escrow funds.
61J2-14.009 of the Florida Administrative Code (FAC) states that every associate who receives any deposit shall deliver that deposit to the broker “no later than the end of the next business day following receipt of the item to be deposited.” Saturday, Sundays and legal holidays are not considered business days.
61J2-14.010 of the FAC clarifies that the broker has to place the deposit “immediately” where it is designated to go. Usually this is either in the broker’s own escrow account or with a title company. “Immediately” is defined under 61J2-14.008(3) as “no later than the end of the third business day following receipt.” Receipt by a sales associate or any other representative of the brokerage constitutes receipt by the broker for the purpose of placing the deposit immediately.
What does all of this mean? If the brokerage – meaning an associate, broker or representative of the brokerage – receives any deposit, that deposit must be where it needs to be no later than the end of the third business day after it’s received.
What happens when buyers give the escrow deposit to an agent or broker?
Using the above examples of the buyers having three calendar days to place their deposit with the escrow agent, and brokers needing to get any deposit they receive to the escrow agent no later than the end of the third business day following receipt, what happens when the buyers give their deposit, let’s say a check, to the agent?
This is where it can get tricky. A lot depends on who the escrow agent is.
If the escrow agent is the broker, then by delivering the check to the broker within three calendar days, the buyers have complied with their obligation under the contract. The broker then needs to deposit that into the brokerage escrow account no later than the end of the third business day to comply with their licensing law requirement.
But what if the escrow agent is a title company or attorney? This is where the agent must be aware of both the contract and licensing law timeframes. Let’s take a look at an example of what I mean.
Let’s say the buyers deposit is due within three calendar days after the Effective Date to ABC Title Company per the contract. The buyers deliver a check to their broker on calendar day two. Based on the rule discussed above, the broker has up to three business days to get it to ABC Title Co. However, if the broker complies with this rule and delivers the check to ABC Title Co on business day three, the buyers’ deposit isn’t being delivered to the escrow agent until after the buyers’ deadline in the contract.
Paragraph 15(a) of the FR/Bar contracts discusses Buyers Default, which includes buyers failing, neglecting or refusing to perform their obligations under the contract, including payment of the deposit.
Escrow Agent information is provided in the FR/Bar contracts under Paragraph 2(a) so that buyers know who must receive the deposit. A conservative recommendation for brokers: If they’re not the Escrow Agent listed in the contract, direct buyers to provide the deposit directly to the Escrow Agent by the deadline. This would eliminate any possible risk or liability that would come with a potential conflict between buyers’ obligations under the contract and brokers’ responsibilities under their licensing law.
However, if a broker is willing to take a buyer’s deposit when the broker is not the Escrow Agent, that broker should be well aware of that buyer’s deadline under the contract to ensure they’re not putting the buyer’s contract at risk due to a late deposit.
Laura Gomes is a Florida Realtors Legal Hotline attorney
© 2019 Florida Realtors®
