Maryland REALTORS® Online

More on Earnest Money Deposits

By Diamond Smith, ESQ.

Associate Counsel at Maryland REALTORS^®

Q: I need clarification regarding the law as it pertains to the “30-day Notice of Intent to Disburse Earnest Money Deposit Letter.” My client, the buyer, was under contract on a condo using conventional financing, 3% down. Four days before settlement her loan was denied because the condo was deemed “not warrantable” per Fannie Mae guidelines. This happened after her lender received and reviewed the condo docs provided by the association. The lender issued the denial letter, and it was delivered to the listing agent two days prior to settlement along with a unilateral release based on financing contingency and the release of funds addendum. The seller is refusing to release the EMD. My brokerage has sent out the 30-day notice to both parties, sent 8 days ago, however, I am questioning the process for the 30-day notice per the law as it seems vague. Maryland REALTORS®’ article on the Maryland REALTORS® website states that it is a 10-day period to notify the parties, and if no contest is received during that time, the broker has 30 days to release funds. However, I am being told (and our broker letter states) it is 30 days to wait for a contest from the seller. Is it 10 days or 30? Also, don’t the rules governing the financing addendum permit release of the deposit to the buyer automatically?

A: Because it appears that the reason the contract fell through was due to the financing contingency, the parties would be allowed to terminate the contract. A new process for release of deposits was enacted in 2023. The law now allows a buyer who terminates a contract under a contingency (excluding a financing contingency) to request that the real estate broker or an escrow agent return the deposit to the purchaser. Within 10 days of receiving the request, the seller must provide proof that they filed a complaint or request for mediation. If they don’t, the holder of the deposit must release it to the buyer within 30 days of the original notice.

However, because the financing contingency is excluded from this process, and in the absence of a mutual release of deposit agreement, the holder of the deposit must follow the procedure for sending the “30-day letter” as provided in Section 17-505 of the Brokers Act. In that case, the holder of the deposit sends both parties a letter indicating to whom the escrow agent intends to distribute it. A party has 30 days from the date the notice was sent to contest the proposed distribution.

Typically, it takes 30 days to comply with law on release of deposits, but there are two distinct procedures based on why the contract was terminated.

As always, when discussing these issues with your customers, clients and/or other real estate licensees, be sure to inform them that you are not an attorney and do not purport to provide legal advice. When issues of a legal nature are presented, you should always recommend that the person with whom you are dealing seek the advice of competent legal counsel.