Both buyers and sellers should be concerned about the contract deposit.  The deposit can be handled several ways, 1) bonded and released to the seller, 2) an interest bearing account with the interest going to the parties or 3) an IOLA account with interest to the IOLA fund (most common). When buying a home make sure your contract calls for the seller’s attorney to put the deposit into an IOLA account so if the contract is cancelled the IOLA account will be there to insure the deposits return.  Sellers are even more concerned because if the deposit is stolen by their attorney the seller is responsible.  All sellers should make sure they hire an experienced real estate attorney from a firm which has malpractice insurance and will require that all contract deposits are held in the firm’s IOLA account.

As an experienced Staten Island real estate attorney I see many new lawyers trying to handle closings.  Unlike other legal areas some people think that a closing is a simple matter.  While a closing need not be adversarial you still need an attorney to protect your interests.  Failing to get an excellent real estate attorney can cost you  thousands of dollars, which is particularly true in the area of contract deposits.  When I first started practicing I was retained by several clients whose attorney had robbed their deposits.  Luckily the money had been in an IOLA account and I was able to get them reimbursed by the Client Fund.  Not everyone is so lucky.  I recently got a panicked call from a client who had bought a house several months earlier.  The attorney for the seller had stolen client funds and he was out a substantial amount of money.  I reminded my buyer that during contract negotiations the seller wanted interest on the deposit while I wanted it to be placed in an IOLA account.  The seller was adamant and after hearing the pitfalls of not using an IOLA account my buyer agreed to allow an interest bearing account (I did put in the contract that the seller’s attorney was an agent of the seller and the risk of loss was with the seller).  We successfully closed but after several months the seller still could not get the deposit money (which belonged to him after the closing) released.  Now with the news of the attorney’s problems the situation was clear, the money was gone.  Since the deposit wasn’t in an IOLA account the seller could not look to the Fund for reimbursement and PS he didn’t get the interest either.

Be smart; make sure you hire an experienced real estate attorney whose firm will be there to back you (and your funds) up.  Don’t be penny wise and pound foolish, insist on an IOLA account.

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If a buyer needs a mortgage the contract make sure you contract contains a mortgage contingency clause.  This gives the buyer a certain amount of time (usually 30 -45 days) to submit an application and get an answer from his lender.  If the application is approved a mortgage commitment is issued, the contingency is satisfied and the buyer must purchase the house.  If at the end of the contingency period the lender has not made a decision (approval or denial), the buyer must ask the seller for more time to get the answer and the seller can decide to give more time or cancel the contract and refund the deposit.  When the mortgage application is denied the contingency allows the buyer to cancel the contract and receive a return of his contract deposit.

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