California Real Estate Salesperson Exam Practice - Quesiton 29

Question

If there is a conflict between the signed escrow instructions and the signed deposit receipt, which of the following would be binding?

Selections

A. The escrow instructions

B. The deposit receipt

C. The broker's oral instructions

D. The general policy of the escrow office

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Answer: A

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5 Keys Summary

• The escrow instructions are generally considered binding and take precedence over the previously signed deposit receipt (purchase contract) when a conflict arises.

• Escrow instructions typically control because they are generally signed later by the parties than the original purchase contract.

• The escrow officer is explicitly obligated to follow the latest signed copies of the escrow instructions when closing the transaction or disbursing funds.

• The escrow instructions reflect the initial contract terms plus any subsequent modifications or amendments mutually agreed upon during the escrow process.

• If future disagreements or legal disputes arise, the updated and signed escrow instructions usually take priority over any previously signed purchase contracts.

Explanations

When a conflict arises between signed escrow instructions and a signed deposit receipt (which is also known as a purchase contract), the escrow instructions are generally considered binding and take precedence. While the initial escrow instructions are often based on the purchase contract, they are typically signed later and reflect any subsequent modifications or agreements made by the parties during the escrow process. The escrow officer is obligated to follow the latest signed copies of the escrow instructions when closing the transaction or disbursing funds.

Concepts Definitions

• Escrow Instructions: These are written directions given by the parties to an escrow agent, specifying the terms under which the escrow is to be conducted. They are based on the initial purchase contract but can be amended, and generally control in case of conflict with the original contract.
• Deposit Receipt / Purchase Contract: This is the initial written agreement between a buyer and seller for the purchase of real property, outlining the terms, conditions, and earnest money deposit. It serves as the foundation for the first set of escrow instructions.
• Escrow Agent/Officer: A neutral third party entrusted to hold money and documents on behalf of both the buyer and seller until all conditions of the transaction are met and the deal closes. The escrow officer must remain impartial and follow the written instructions.
• Amendment: A supplementary agreement that changes one or more terms of a contract after it has been mutually accepted and during the escrow process. Changes made after escrow is opened are considered amendments.
• Bilateral Contract: A contract by which each party is bound to a promise to perform. Escrow instructions are a type of bilateral contract between the buyer and seller.