Ordinarily, one would expect most home purchase contracts to be completed. After all, the buyer and seller have negotiated several contract terms and a final price. However, many sales are not completed in today’s market and when that happens, for whatever reason, escrow must be cancelled.
Why would someone cancel escrow? Given the unstable financial environment and constantly changing loan guidelines, many contracts are not fulfilled because buyers are unable to obtain financing. Another simple example is where a buyer conducts a home inspection as a condition of the purchase contract. If the buyer is not satisfied with the inspection findings, he/she may cancel the purchase contract and thus, cancel escrow.
Here are some rules regarding cancelling escrow:
1. The escrow company does not determine whether a party has defaulted on the purchase contract or whether any provision has been breached.
2. The escrow company requires mutual, written instructions to cancel an escrow; including agreement on how to disburse funds on deposit and how to satisfy outstanding invoices (examples include cost of a survey or termite inspection).
3. The escrow company is neutral and will not take sides or interpret the purchase contract.
4. If funds are deposited with the Court in an interpleader action, those funds may be used to pay the escrow company’s attorney fees to file the interpleader action.
5. The escrow company cannot open a second escrow on a property if escrow has a contract for the sale of that property unless there are clear written instructions that the second sale is subject to cancellation of the first sale contract.
6. The escrow company cannot close the sale of a second escrow on a property if escrow has a prior contract for the sale of that property that has not been cancelled.
7. The escrow company may close the sale of a property if another escrow company has an escrow on that property unless a notice of pendency of action (lis pendens) is recorded against the property, but the seller may have obligations to disclose the fact that the prior escrow is not cancelled.
8. The escrow company may cancel an escrow where there is a dispute as to how to disburse funds, but there must be clear written instructions signed by the parties to cancel and hold funds pending resolution of the dispute.
DISCLAIMER: this is general information and should not be relied upon for any legal, business, economic or tax decision. It is not intended to provide legal or business advice. Before making any decision regarding this matter, you should consult with an attorney.
Contributed by Michael Zimmerman
Direct: 808-457-9683
Michael@Michael-Zimmerman.com
www.michael-zimmerman.com
Subscribe to Honolulu Real Estate and Community News
