Lake Orion Real Estate Talk - Mutual Releases

On this weeks Lake Orion real estate talk I want to explain what a mutual release is and how it affects you as a buyer or seller in the real estate process. It can affect you a lot so it is important to understand it.

What is a mutual release? You may have never even heard about it if you have never had a problem with the earnest money. It is a relatively new addition to our Michigan real estate process. It has come about in the last 10 years.

When buying a house you put earnest money down or a good faith deposit. It is held by the real estate company in a special escrow account at a bank. Because of all the lawsuits and litigation real estate companies now require a mutual release to be signed. Real estate brokers had gotten tired of being caught in the middle of earnest money disputes and being sued over it. So out came the mutual release. So what is a mutual release? It is a form that is signed by all parties (both the buyer and seller) authorizing the release of the earnest money to a certain party. In theory the buyer and seller will sign the paper authorizing who gets the earnest money.

It sounds simple doesn’t it? Well it is not always a smooth process. If the home inspection went bad on the lakefront home in Lake Orion and in the purchase agreement it says the contract can be voided because of the bad inspection and the money is to go back to the buyer. Then the mutual release would say the money would go to the buyer.

If the buyer just flaked out and decided not to buy the property for no reason. Then the mutual release would say that the seller would get the earnest money if the purchase agreement said so. So what a mutual release is a form directing who gets the earnest money signed by everybody so nobody can come back later. The buyer or the seller cannot say later they did not authorize the release. It protects everybody involved.

So what can be the problems with the mutual release? The issue comes in when one of the parties refuse to sign off on the mutual release. The seller may want to keep the earnest money even though they are not entitled to it. They may be upset that the deal fell apart. It is usually the seller that creates the problem in getting the mutual release signed. So to minimize issues with a mutual release I always try to keep my buyers earnest money to a minimum. That way if there is an issue and the seller refuses to sign the mutual release at first, the buyer does not have all their money tied up into a earnest money deposit. It is a rare situation but I like to protect my buyers.

Most sellers do sign the mutual release and both parties can move on in life. I hope this explanation of mutual release helps you down the road. Whether you are buying or selling a piece of real estate in Michigan a good real estate agent will guide you through the process.

Stay warm......Russ Ravary your Keller Williams real estate agent