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Earnest Money Deposit Requirements for Bank-Owned Properties

December 01, 2010

Scenario: A broker is representing a buyer in a transaction involving an REO (bank-owned) property. The seller (bank/lender) requires the earnest money to be sent to an out-of-state escrow. Is this allowed under Oregon Revised Statutes (ORS) and Oregon Administrative Rules (OAR) administered by the Oregon Real Estate Agency?

 ORS 696.241(1) provides as follows:  

  • Each principal real estate broker shall maintain in this state one or more separate bank accounts that shall be designated a Clients’ Trust Account in which all trust funds received or handled by the broker and the real estate licensees subject to the supervision of the broker on behalf of any other person shall be deposited unless, pursuant to written agreement of all parties having an interest in the trust funds, the trust funds are immediately placed in a licensed neutral escrow depository in this state.

The Agency interprets this statute to require brokers to deposit earnest money into either:

  1. the principal broker’s clients' trust account maintained in Oregon, or
  2. a licensed neutral escrow depository in Oregon as agreed to in writing by all parties to the transaction.

The statute does not allow a broker who receives or handles earnest money to deposit that money in an escrow that is out of state.

If the broker deposits the buyer’s earnest money into the broker’s clients’ trust account, then the broker must comply with applicable rules on disbursement of these funds.  OAR 863-015-0255(14) provides that all funds deposited into a clients' trust account established under ORS 696.241 that are not disbursed or transferred to a neutral escrow depository pursuant to the sale agreement may only be disbursed:

  1. To individuals, as directed by order of court of competent jurisdiction;
  2. To individuals, as directed in writing by one or more principals; or
  3. To the court, upon filing by the principal broker of an interpleader action for disputed earnest money funds.

The rule does not allow a principal broker to transfer the earnest money from the clients' trust account to an escrow that is out of state.

Licensed Oregon escrow agents are licensed by the Real Estate Agency and must follow statutes and rules when disbursing funds.  Escrow agents must follow written, dated instructions from the principals to the transaction (ORS 696.581).  ORS 696.578 requires all funds deposited into an escrow account to be deposited into a federally insured bank account in a bank authorized to do business in Oregon.  OAR 863-050-0055(4) states that all funds deposited in an escrow trust account established under ORS 696.578 may be withdrawn, paid out, or transferred to other accounts as specified in the written escrow instructions of the principals to the escrow transaction directed to the escrow agent or pursuant to order of a court of competent jurisdiction.    

A licensee facing the scenario above would be wise to seek legal advice on this matter.  The Agency cannot give legal advice to licensees or the public.  Part of the Agency's mission is to provide quality protection for Oregon consumers of real estate, escrow, and land development services.  If earnest money is sent out of state, the Oregon consumer may have less access to the out-of-state escrow company and may need to look out of state for resolving complaints or disputes. The Agency does not regulate the maintenance and access to records of out–of-state escrows.  Finally, Oregon escrows are subject to bonding requirements that out-of-state escrows may not be subject to, potentially depriving Oregon consumers of available remedies.   

The licensee should always review the text of the actual statutes and rules and should not rely on the Agency’s summary to cover all requirements.  The licensee should also review the obligations of a buyer's agent under ORS 696.810

Stacey Harrison, Education Division Manager, Oregon Real Estate Agency

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