Listing Broker Hit With Triple Damages For Breaching Escrow Duties

by Rich Vetstein on December 14, 2010 · 3 comments

in Massachusetts Real Estate Law, Purchase and Sale Agreements, Real Estate Litigation, Realtors

This post is a continuation of my discussion about the recent Massachusetts Appeals Court case of NRT New England, Inc. v. Moncure (click for link). Last week I talked about why the decision was very important in upholding the standard liquidated damages clause in the the typical purchase and sale agreement.

This week I’ll talk about the court’s ruling that the listing broker violated its fiduciary duties when it messed around with the escrow deposit.

Quick Take-Away

The important take away from this case for all real estate agents is that if you are holding a deposit as an escrow agent, don’t even think about messing with it even if there’s a legitimate dispute about your commission or other monies owed to you. It’s not your money! The best advice is to let the dispute run its course and continue holding the funds in escrow.

Dispute Between Listing Broker and Buyer

The facts of this case are a bit unusual. Listing Broker represented the seller in a purchase of residential property in Wayland, MA. Under the standard purchase and sale agreement, the buyer posted a $92,500 escrow deposit which Listing Broker held as an escrow agent. The same buyer apparently used Listing Broker on another transaction and owed it nearly $35,000 in fees.

The buyer lost its financing and defaulted on the contract, thereby forfeiting the $92,500 deposit. (I covered that in my prior post). Listing Broker took an assignment of the buyer’s right to the escrow funds, but didn’t tell its client that right away. Then Listing Broker tried to strong-arm its client by threatening litigation if he didn’t accept $2,500 and release the escrow deposit to Listing Broker.

Breach of Fiduciary Duty and Chapter 93A Violation

The court was none too happy with Listing Broker’s course of action here. The court reaffirmed that Listing Broker had a fiduciary duty — one of the highest duties under law — to hold the funds for the benefit of the seller and not to engage in any self-dealing. The court found that Listing Broker’s collection of a debt against the escrow deposit while it was acting as escrow agent was a clear breach of fiduciary duty.

The kicker was that the court imposed triple damages and an award of attorneys’ fees under the Massachusetts Consumer Protection Act, Chapter 93A. So Listing Broker is now on the hook for $277,500 plus thousands in legal fees. Ouch!

  • Ann Cummings

    A buyer put $1,000 down pending a house inspection. The house inspection was scheduled and canceled. After holding up the sale of the house, the buyer released the seller so they could put their house back on the marked. Is the seller entitled to the $1,000 the buyer put into escrow?

  • John Gladwin

    What if the buyer submitted a lesser amount as a deposit and a futher as an “Installment” on the purchase price ?
    Locally, only deposits are subject to forfeiture.

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