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If the contract terminates who gets to keep the earnest money?

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A buyer offers an amount of money called earnest money as a good faith deposit towards purchasing a home. One party is entitled to the earnest money if the other party fails to perform a contract term without a legitimate legal excuse. The title company holds the earnest money until closing. At closing, it’s returned to the buyer. A respectable amount is around 1% of the contract price. Greater the amount, the greater the negotiating position.

There are many convoluted circumstances determining the party receiving the earnest money if a contract unlawfully terminates. During the Option Period, for any reason, a buyer can notify the seller and title company of termination for return of the earnest money. After that time, both buyer and seller must agree in writing who gets the earnest money or it stays at the title company. There are various legal remedies to handle disputes over earnest money when a contract terminates. The title company does not rule on what party receives the earnest money if the contract is terminated lawfully or not lawfully.  Only a judge can force the release of earnest money. 

In my opinion, not backed by fact or statistics, buyers get back the earnest money 99% of the time unless they are willing to give or share it with the Seller. Of course, this is a contract issue and every party facing unlawful contract termination should consult an Attorney. By law, a broker or agent is not qualified to give legal advice. For the buyer, there are many conditions to lawfully terminate a contract. For the seller there are few.  For the seller, an unresolved contract creates a “Cloud” on the title of the property. Title companies will not transfer title until prior disputes are resolved. A seller should release the earnest money and get the property back on the market if they still want to sell their property. 

Notice: This website contains general information about legal and financial matters. The information is not advice, and should not be treated as such. You must not rely on the information on this website as an alternative to legal or financial advice from your attorney, accountant or other professional services provider. If you have any specific questions about any legal and financial matter you should consult your attorney, accountant or other professional services provider.