Jan 2, 2025
Elevated interest rates, inflated home values, and a general lack of inventory have made life difficult for mortgage brokers across the U.S., many of whom are struggling to drum up business. But it was particularly shocking when SUCCESS Real Estate in Massachusetts suddenly closed its doors in mid-December. The firm had a 32-year history and had sold billions in real estate over the past five years.
The problem, though, is multifold. Not only might some real estate transactions be stuck in limbo on the heels of the closure, but some home buyers may have funds they deposited with the firm sitting in escrow. And it's unclear as to when and whether they'll be released.
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“This is the first time in my 25-plus years that I can remember a property firm closing down in Massachusetts,” Attorney Richard Vetstein shared with Boston 25 News. And although SUCCESS owner Steve Webster sent a message to Boston 25 News stating he was "working hard every minute of every day to make things right," it leaves a lot of questions unanswered. And Vetstein said that due to the uncertainty around buyers' escrow funds, this has the potential to be "a disastrous situation for everybody."
Will some home buyers be left in the lurch?
When a buyer makes an offer on a home, it's common to put down a deposit that's held in escrow until the transaction is completed — a process that could take months between contract negotiations, home inspections, and mortgage closings. Escrow funds are designed to protect sellers and prevent buyers from simply getting cold feet and backing out of deals they've committed to.
At this point, it's unclear what SUCCESS's sudden closure means for clients whose escrow funds were being held by the firm. So far, no one has been accused of a crime. But according to Vetstein, "This money is supposed to be just sitting there." And he warned that if the escrow funds the firm was holding are now gone, "It’s a crime. And it’s a serious one."
To be clear, missing escrow funds are a problem for both buyers and sellers. When a buyer puts funds into escrow, the funds are usually applied to their down payments. Missing funds could put buyers in a position where they have to come up with that extra money on their own.
Meanwhile, it's common for escrow funds to be released to sellers at the close of a real estate transaction. So if there's a sale in progress but that money is gone, sellers risk being shorted, too.
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How to protect yourself
When a real estate brokerage closes, its active listings typically need to be transferred to a new brokerage. In some cases, your broker might find a new firm to take over its listings.
If you've engaged with a real estate brokerage to purchase your home — or if you've hired a firm as a buyer's agent but you're not in the midst of an active contract — then you can generally move on and find another firm to represent you. It's when you're mid-contract and funds have been put into escrow that things get dicier.
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People who bank at FDIC-insured institutions get up to $250,000 of protection for their deposits. And the Securities Investor Protection Corporation (SIPC) exists to protect investors whose brokerages fail. The SIPC covers investors for up to $500,000 in cash and securities per account — you can look here to see if your brokerage is covered by the SIPC.
But real estate brokerages — and escrow deposits — generally do not enjoy SIPC coverage. The SIPC may, for example, make you whole on certain real estate investments, like REITs, which are registered with the Securities and Exchange Commission. But in a situation like the one described above, you can't bank on this coverage to kick in. That’s why it’s important to do a thorough job of vetting a real estate brokerage before signing on with it.
Doing your homework
First, you’ll want to review the history of the brokerage you’re considering. If the brokerage has been around for decades, that typically buys you some protection (though clearly, the case with SUCCESS Real Estate mentioned above is a glaring exception).
Also, check the brokerage’s rating with the Better Business Bureau. And if the BBB has any complaints for the firm on file, read them carefully so you know what you're getting into.
Finally, look at the brokerage’s recent sales to see if there's any indication that things are slowing down. If the firm you're talking to hasn't closed on a transaction in months, it could be a sign that it may be on the brink of closure.
Unfortunately, a good number of people are now stuck in limbo as authorities investigate the SUCCESS Real Estate closure. And clients who signed on with the company weren’t necessarily negligent — this may be one of those fluke situations. But the more you research your real estate brokerage, the less likely you may be to land in a similar boat.
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Maurie Backman has been writing professionally for well over a decade. Since becoming a full-time writer, she's produced thousands of articles on topics ranging from Social Security to investing to real estate.
