Years ago, title insurance companies provided only title insurance. Earnest money was deposited and held in the listing brokers trust account and brokers would prepare the closing documents and conduct the closing. Today, title companies offer closing services, including holding earnest monies. Most brokers utilize these closing services. Therein lies the concerns.

Both title companies and brokers have forgotten who is working for whom, and who is liable for the transaction. Be aware that brokers remain fully responsible for the closing and for the accuracy of all closing documents, regardless of who prepares the documents.

Recognizing your obligations and liability, let’s discuss strategies to prevent trouble leading up to the closing and beyond.

Get an Earnest Money Receipt

If the title company, or any third party, will be the earnest money holder, you must obtain either a signed Commission Approved Earnest Money Receipt or signed Closing Instructions upon delivery of the funds. Either form obligates the earnest money holder to release funds in accordance with the contract. A title company prepared receipt form may not obligate the title company to comply with the contract creating potential problems for the broker should the transaction fail. In addition, if a title company misplaces the earnest money, or worse goes out of business or absconds with funds, as has happened, the broker could be liable for the earnest money!

Signing Settlement Statements

Commission Rule states the licensee who has established a brokerage relationship is responsible for the proper closing of the transaction. The licensee shall provide, sign and be responsible for an accurate, complete, and detailed closing statement. Make sure you review the settlement statement prior to closing and secure a signed copy in your transaction file.

Ensure Delivery of the Title Insurance Policy

As is often the case, the transaction “closes on a commitment”, meaning the buyer closes on a promise the actual title insurance policy will be delivered post-closing. If Section 8.1.1 of the Contract to Buy and Sell applies, the “Seller will cause the title insurance policy to be issued and delivered to as soon as practicable at or after closing”. Failure to do so is a seller default of the contract and leaves the buyers title uninsured.

Licensees involved in the transaction are required to exercise reasonable skill in care including, but not limited to, making sure the party they represent does what they have agreed to do. If the seller fails to cause the title insurance policy to be delivered to the buyer, the listing broker can be held liable for not exercising reasonable skill and care! Protect yourself and set up a method to track and confirm the delivery of the insurance policy to the buyer.

Keep it Confidential

Confidentiality is a duty that applies to all brokerage relationships. Throughout the transaction, your consumer may disclose confidential information, and may or may specifically instruct you to keep that information confidential. If the brokerage relationship was agency, the duty of confidentiality extends beyond the closing into perpetuity. If the information was confidential during the transaction, it stays confidential after the transaction. Breaching this confidentiality before or after closing can get a broker into trouble.

However, if the brokerage relationship was Transaction Broker, this confidentiality does not extend beyond the closing. None-the-less, one should be very thoughtful as to disclosing any confidential information.