Hello, I hope everyone is well. My partner and I encountered a dilemma we've never experienced before. We really don't know how to move forward without consulting an attorney, so I decided to post our situation here in hopes of getting some bits of wisdom.
We made an offer in the name of a land trust that we hadn't formed completely at the time that our offer was accepted and signed by the seller. My partner put up an EMD amount of 1K via a certified check in his name. After consulting a good friend of mine, we decided to not go the trust route and to just use our personal names to purchase the property. We informed our agent via email of the change who, in turn, informed the listing agent. We never signed an addendum mentioning using our personal names. Well, our title company discovered there were massive issues with title and would not insure the property. Due to clear title not being produced, we signed a release from the AOS form confirming that our deposit would be returned. My partner went to pick up his deposit check and realized that the check was made payable to the trust. His name did not appear on the check. He contacted the listing agent to get a revised check. The agent agreed to do so, but eventually contacted my partner and told him that the check has to remain in the trust's name. We were informed by the listing agent's broker that we should finish setting up the trust, get it notarized, take it to the bank to open up an account for the trust and deposit the check. Is there a simpler way to do this? Is this our only option? The error wasn't on our part, as we promptly revealed that we'd be using our personal names and not the trust. It had also been revealed that we would not proceed with establishing the trust upon receiving the signed contract from the seller's side.
No idea about laws where you are, but I work for a national homebuilder and we always refund earnest money to the name on the check, regardless of who the purchase contract is with. Another builder I worked for did the opposite. So probably not much help but I could imagine that a solid argument could be made to get the check made out to your partner.
@Deborah Smith Thanks! We followed the broker's suggestions and set up the trust and had it notarized. Now, the bank mentions that it's a commercial entity and most likely an EIN needs to be established in order to open up an account for the trust. This matter is becoming more challenging and frustrating. The bank's legal department will give us a final word next Tuesday.
If you're not planning on using the trust for anything else, you shouldn't need to set up a bank account (which you would eventually close) just to deposit one check. You could just endorse the check to your partner and then your partner could deposit it into his personal account. Most banks shouldn't have a problem accepting a third party check for deposit but they might ask for documentation to verify that you are authorized to endorse the check on behalf of the trust.
Obtaining an EIN from the IRS is very simple and can be done online in a few minutes but seems unecessary if the trust will not have any financial transactions other than returning an earnest money deposit to its source.
Thanks for your input @Peter F.
No, we're not planning on using the trust for any reason. I reviewed the release form again and it clearly states that my partner and I are the buyers and the Trust is not mentioned at all. It also indicates that the deposit is to be returned to the buyers as set forth in the release. It really baffles me that a new check cannot be issued bearing the correct information. I'm familiar with obtaining an EIN, and I'm in agreement with you that it seems irrelevant to do so since the trust wouldn't be used . I'm just wondering why the release isn't being honored which clearly states the deposit should be returned to us and not the Trust. We'll see what the end result is this coming Tuesday.
A THT takes 5 minutes to draft. I say, create the trust. Get an EIN, open up a simple passbook bank account w/out checks with your favorite banker. No revenue, no profit, so no separate return. Worst case, -0- item on schedule.
Endorse check along with "For Deposit Only" or ask teller to stamp same. Get a cashiers check after deposit clears.
You can always recycle or "repurpose" this Trust for another venture. If you need instructions on the THT, buy the book written by attorney Mark Warda.
Let this be a lesson concerning hesitation in planning.
@Rick H. Thank you for your input. Yes sir, lesson learned. I'll update once we hear from the bank on Tuesday.
We'd gotten the issue resolved. The account for the trust was able to be opened.
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