Spring 2005 Newsletter UPDATE

Spring 2005 Newsletter UPDATE

Washington Legislature Changes Statute - Court of Appeals Decision On Earnest Money Forfeiture Effectively Overruled
 
As reported earlier, the Washington Court of Appeal ruled in the case Chrisp v. Goll that all Purchase and Sale Agreements in which one of the parties wishes to utilize the Forfeiture of Earnest Money provision must include the initials of both the Seller and Purchaser on the Forfeiture Clause.

The Washington Legislature has responded to the concerns of real estate agents by amending RCW 64.04.005 - the statutory earnest money forfeiture provision - to render the Court of Appeals decision ineffectual.  This was done on the last date of the session - April 26, 2005.

The new statute reads as follows:

(1) A provision in a written agreement for the purchase and sale of real estate which provides for liquidated damages or the forfeiture of an earnest money deposit to the seller as the seller's sole and exclusive remedy if a party fails, without legal excuse, to complete the purchase, is valid and enforceable, regardless of whether the other party incurs any actual damages. However, the amount of liquidated damages or amount of earnest money to be forfeited under this subsection may not exceed five percent of the purchase price.

(2) For purposes of this section:

(a) "Earnest money deposit" means any deposit, deposits, payment, or payments of a part of the purchase price for the property, made in the form of cash, check, promissory note, or other things of value for the purpose of binding the purchaser to the agreement and identified in the agreement as an earnest money deposit, and does not include other deposits or payments made by the purchaser; and

(b) "Liquidated damages" means an amount agreed by the parties as the amount of damages to be recovered for a breach of the agreement by the other and identified in the agreement as liquidated damages, and does not include other deposits or payments made by the purchaser.

(3) This section does not prohibit, or supersede the common law with respect to, liquidated damages or earnest money forfeiture provisions in excess of five percent of the purchase price. A liquidated damages or earnest money forfeiture provision not meeting the requirements of subsection (1) of this section shall be interpreted and enforced without regard to this statute.

However, the session law that adopted the new statute states:

Section 2.  This act applies to all contracts executed after the effective date of this act.

(Emphasis added).

The Legislature then declared an emergency, so that the change in the statute went into effect immediately on April 26, 2005.

Real Estate Agents are therefore advised to review all Purchase and Sale Agreements that were executed before April 26, 2005.  If the Forfeiture of Earnest Money is intended as the remedy, and if the Forfeiture Clause is not initialed and the NWMLS Optional Clause Addendum – Form 22D – is not also used, it may be sound practice to ask the parties to initial the clause and request the execution of the Form 22D before a problem takes place, while the parties are still cooperating.

For Purchase and Sale Agreements executed after April 26, 2005, the legislative change to RCW 64.04.005 preserves the ability of parties to choose the Forfeiture Clause in NWMLS forms without the necessity of separately initialing it.

Cordially,
 
Jeffrey P. Helsdon
Oldfield & Helsdon, PLLC
(253) 414-3525 (direct)
(253) 677-1031 (cell)
(253) 414-3500 (facsimile)
www.tacomalawfirm.com