Alan Wins Arbitration on Novel Legal Issue Concerning Real Estate Deposit

On September 1, 2011, Alan secured an award for his client in an arbitration proceeding which raised a question of first impression in Massachusetts: What happens when a buyer gives a deposit on real estate to the seller’s real estate agent, where the purchase and sale agreement requires the deposit to be paid to the seller’s attorney?

The answer, according to the arbitrator, is that the buyer bears the responsibility for making the payment to the wrong person, even if the person to whom the deposit was paid appeared to be acting in the seller’s interest.

Alan’s client, the seller, entered into an agreement to sell undeveloped property. The buyer, an attorney, entered into a purchase and sale agreement using a “straw”—a person who the attorney set up to buy the property on his behalf—because he didn’t want neighbors to know he intended to buy the land. The P&S provided that the deposit was to be held by the seller’s attorney, and not the listing broker. However, the straw—a real estate agent—instead tendered the deposit check to the seller’s broker. This was not problematic except for the fact that the broker ultimately closed down his office, moved out of state and absconded with the deposit funds.

The buyer ended up backing out of the transaction because he claimed the seller did not furnish proper notice that she needed additional time to cure title defects (purchase and sale agreements typically have provisions that allow a seller, on written notice, to obtain an additional 30 days beyond the scheduled closing date to cure any title issues). When the seller attempted to claim the deposit, the broker was evasive, then skipped town.

The arbitrator made two findings in favor of Alan’s client. First, he found that the buyer had defaulted under the P&S, that the seller had in fact given proper notice of the extended closing date, and that the buyer’s true reason for not going through with the deal was that his plans to construct a pool on the property were rejected by the local conservation commission. Secondly, he found that the buyer did not comply with the provision in the P&S concerning the payment of the deposit, and thus had to pay the seller a second time. Specifically, the arbitrator found that although the seller had not expressed to the buyer her reason for wanting to have her attorney, and not the broker, hold the deposit, the seller had heard after she signed the listing agreement that her broker had not paid some agents working in his office, and this gave her cause to be concerned about his trustworthiness to hold deposit funds. The arbitrator found that in view of the seller’s concerns, it constituted a “material” breach of the P&S for the buyer to pay the deposit funds to the broker.

Contact Greater Boston Real Estate Deposit Dispute Lawyer, Attorney Alan Fanger

Attorney Alan Fanger is a Massachusetts real estate dispute attorney with offices in Wellesley. He serves the entire Greater Boston and Boston metrowest region including Arlington, Boston, Braintree, Brookline, Cambridge, Canton, Concord, Dedham, Dover, Framingham, Lexington, Milton, Natick, Needham, Newton, Norwood, Quincy, Sherborn, Sudbury, Waltham, Wayland, Wellesley, and Weston, Massachusetts.

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