As you know, paragraph 3 of the RPA, titled “Finance Terms,” is one of the longest and most important in the entire contract. As a result, we will cover it over multiple posts, each one discussing some portion of the clause. Today, we will start with subsection A, “Initial Deposit.”

Of course, the main issue with the Initial Deposit relates to how it is being delivered to escrow. In previous versions of the RPA, the boilerplate stated that the deposit, in whatever amount was indicated, “has been given” to the buyer’s agent. As you will recall, that past tense language created issues for us since oftentimes we did not actually have a check at the time the offer was made. On more than one occasion, after a default by the buyer, the seller looked to us for the deposit money since the contract said we had received it when in fact we had not. In such a case, we often had to pay money to the seller since the language in the contract clearly constituted a misrepresentation.

As a result, the latest version of the RPA made a great change to the boilerplate. Now, in section 3(A)(1) of the contract, the default provision says that the “Buyer shall deliver deposit directly to Escrow Holder…” and then gives numerous choices for how that money will be delivered. In section 3(A)(2), we can check a box and represent that the check has been given to the buyer’s agent, like the old contract discussed above. Of course, if at all possible, we should always use the default provision and never accept a check. There are multiple reasons for this. First, as we discussed above, if you check the box in section (A)(2) and don’t actually receive the check, you could be responsible to the seller in the case of a default. Next, if we do take a check, we have to log it in correctly and make sure that the Trust Log, as a whole, is handled pursuant to DRE regulations. Again, as we have told you many times, when the DRE audits an office, the first thing they look at is the Trust Log and the first thing they try to pin on us is a mishandling of trust log funds. Obviously, if we never touch the check, we never have to log it in and therefore have nothing to worry about. As a result, do your best to never take a deposit check.

Finally, remember one other thing about this paragraph. If your contract defaults to the boilerplate, you need to follow up with escrow and make sure that they have actually received the deposit, especially if you represent the seller. We have had numerous instances where the contract calls for the deposit to go directly to escrow but it is never received. In the case of a default, the seller wants to know why his/her agent never checked to make sure the money was there and often looks to us for compensation. So don’t forgot about the deposit just because we don’t touch it. Follow up with escrow and make sure the buyer actually performs.

As always, please contact us with any questions you may have.