We may have a potential dispute. The Buyer submits a 5% deposit, that is, $100,000.00 on a $2 million sale. The difficulty is that there is a dispute between the two parties. The market falls between the date of the purchase and the date of the closing. This can actually happen, just look at 2017 and 2022.
For whatever reason, the deal fails to close and the parties are in litigation. That takes 7 years!
Over that time period, the interest on the deposit money would be $21,000.00 at 3%per annum.
So, the fundamental question! Was the interest earned part of the deposit?
After all, we are talking about $121,000.00 now.
Generally speaking, it seems that convention is that the interest goes with the principal. But, why not make that clear!
Let’s post the principal amount of $100,000.00 with the Listing Brokerage, but say at the outset, “the interest earned on it is mine, no matter what”. At the end of the 7 year period, if I lose the lawsuit, $100,000.00 goes to the Seller and I still get the $21,000.00 back.
This actually has an added benefit because the Listing Brokerage is clearly holding:
1) the deposit, and
2) the interest earned on it
for two separate parties, meaning, of course, that the Listing Brokerage can’t really jump in at any point and pay out the money. They have to wait for the Courts to decide. This means that there may be a safety factor here for Buyers if they choose to take advantage of the opportunity.
Brian Madigan LL.B., Broker