There are various legal remedies and rules to handle disputes over earnest money when a contract terminates. The question of unlawful termination is a ultimately a legal issue for a courtroom. Rarely, does a disagreement get far enough getting attorneys involved, yet get to the courtroom. By law, a brokerA person or firm that acts as an agent between providers and users of products or services, such as a mortgage broker or real estate broker. See also “Mortgage Broker.”… like myself, or agent cannot give legal advice. Questions of termination and litigation should be answered by attorneys.
Most title companies operate within the following rule. During the option periodAn option period is a specified time frame in a real estate contract which allows a buyer to terminate the contract for any reason. It creates the right to terminate within the specified number of days for a specified price. Usually the first 5-10 days of the contract. During the option period, a buyer inspects the home for material defects. …, a buyer can terminate for any reason and get back the earnest money without consent of the seller. After that, distributing the earnest money requires both buyer and seller to agree in writing. Without agreement, it stays at the title company. Title companies do not act for either parties without agreement.
Unbacked by fact or statistics, the buyer gets the earnest money 99% of the time. Unless, they are willing to give or share it with the seller. Of course, this is a legal issue and every party facing contract termination should consult an attorney for advice. Why does the buyer get it? Two reasons. One, there are more than 30 contract clauses giving the buyer the lawful right to get it back. Second, an unresolved contract dispute creates a “Cloud” over the title of the property and the seller may not be able to sell the property to anyone else until resolution of a dispute. See the article “If the contract terminates who gets to keep the earnest money?” for further discussion.
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