COVID-19 and Your Real Estate Transaction
The COVID-19 pandemic and Governor Inslee’s “Stay Home, Stay Healthy” order have stopped your real estate transaction dead in its tracks. The earnest money is in escrow, but Washington is shut down for all but “essential services”, which does not include real estate at this time. What are your options?
If your transaction involves Northwest MLS Forms, NWMLS Form 22A requires the Buyer to apply for their financing within 5 days, and to make a good faith effort to secure that financing. At any time 10 days after mutual acceptance, the Seller can request a status update on the Buyer’s financing, and the Buyer has 3 days to respond. The Form further provides that the Seller may give the Buyer a Right to Terminate Notice 30 days after mutual acceptance, and if the Buyer has not previously waived the Financing Contingency, the Seller may give the Buyer a Termination Notice, in which case the transaction is terminated. Any of these deadlines can be modified by the agreement of the parties. The form further provides that the earnest money shall be refunded to the Buyer after the Buyer’s lender confirms in writing; a) the date the Buyer’s loan application was made, including a copy of the Loan Estimate; b) that Buyer possessed sufficient non-contingent funds to close the transaction; and c) the reasons Buyer was unable to obtain the financing.
If your transaction involves CBA Forms, the CBA Form PS-FIN only requires the Buyer to apply for financing within 5 days of mutual acceptance, pay the required costs and make a good faith effort to secure the financing. The specific terms of the financing are specified in the Addendum, and the Buyer may not reject the financing if it is offered on those terms. The default contingency period is 60 days from mutual acceptance. This form does not require the Seller to monitor the Buyer’s financing or to give any of the notices required in the NWMLS forms.
Here are your options:
Private Negotiations. Nothing stops you from trying to resolve an earnest money dispute on your own, and if you are able to do so, you will save a significant amount of money in legal costs. If the Buyer has failed to meet the procedural deadlines, or if the Seller has failed to give the required notices in a timely fashion, the dispute may be easier to resolve. But more often than not, the question boils down to whether or not the Buyer had sufficient non-contingent funds, whether they made a good faith effort or whether the denial was legitimate. These issues quickly become more legally complex, which can hinder your ability to resolve it without legal counsel.
Mediation: Mediation involves a neutral third party with training in dispute resolution. Many mediators are attorneys, but that is not a requirement. The mediator’s role is to facilitate a resolution of the dispute, which almost always means that both sides must compromise. As such, mediation is not binding. Most mediators will ask for a mediation letter describing the parties’ positions in advance of the proceeding. Meditations can happen fairly quickly and are an effective way to quickly and relatively inexpensively resolve an earnest money dispute.
Arbitration. Arbitration is essentially a trial in front of a private judge. As such, lawyers are usually involved and the parties exchange briefs, exhibits and witness lists before the hearing. The rules of Arbitration are slightly relaxed compared to a Superior Court trial, however it is much closer to a trial than a mediation. At the end of the hearing or shortly thereafter, the Arbitrator will make their ruling, which often includes an award of attorney’s fees to the prevailing party. The parties specify in advance whether the Arbitration is binding or not.
Interpleader: Interpleader is a formal court proceeding in which the holder of the earnest money (usually the escrow company) files a lawsuit against the parties, deposits the funds into the Court Register and asks to be dismissed from the litigation. It is then up to the parties to file a motion to have the funds released to the Seller or refunded to the Buyer, as the case may be. Attorneys are almost always involved and attorney’s fees and court costs are almost always awarded to the prevailing party. This being the case, interpleaders more expensive and time-consuming than mediation or arbitration. In earnest money disputes involving smaller deposits, the attorney’s fees quickly can exceed the amount of the deposit, making interpleader a zero-sum game.