Business conflicts always seem to revolve around money. It’s
no surprise that some of the worst disputes we see at title companies are over
earnest money: Who wants it. Who is entitled to it. Who thinks they’re entitled
to it. Etcetera. It can get uglier than avocado appliances and shag carpet.
When a transaction fails to close, any earnest money that
was deposited with the title company must be disbursed to someone. The
provisions for this are in the standard contract put out by TREC – the Texas
Real Estate Commission. What happens to the earnest money is spelled out
clearly. Of course, that doesn’t stop people from fighting over it anyway.
The TREC contract addresses earnest money in several places.
The most obvious (and easiest) is the option period. This paragraph 23 allows
the buyer to terminate the contract within the specified option period and be
refunded their earnest money. That’s seems straight forward enough.
Beyond the option period, determining who gets the earnest
money can get more complicated and will typically require both parties to sign
a release of earnest money form.
Some of the scenarios where the buyer could terminate the
contract and get their earnest money back include:
• The
commitment is not delivered for reasons beyond the seller’s control (paragraph
6B of the contract)
• Objections to items on the survey within a specified time (paragraph
6D)
• Not
receiving/objecting to items in the seller’s disclosure (paragraph 7B2)
• Repairs
exceeding 5% of the sales price (paragraph 7E)
• Damage that can’t be repaired prior to closing (paragraph 14)
• If the
seller defaults on the contract (paragraph 15)
Typically, the seller gets the earnest money if the buyer
defaults on the contract. With all that ink on the pages dedicated to earnest
money, there shouldn’t be much room for doubt. But disputes still arise.
In many cases, the title company cannot disburse the earnest
money to either party unless they both agree. And when they don’t agree, there
are very specific consequences. Check out the details of paragraph 18 of the
contract.
It notes that the title company (escrow agent) is a neutral
third party. And that they may deduct expenses they incurred from the earnest
money. Those are typically items like a new survey, tax certificate, or HOA
documents that were ordered.
Either party can demand the release of the earnest money and
the other party must either release it, demand it themselves, or lose it. If
they both demand the earnest money, they may end up duking it out in court.
But note that this paragraph also points out that if a party
wrongfully fails or refuses to sign a release of earnest money within seven
days of its request, they can be liable for not only the earnest money, but
damages, attorney fees, and costs of a lawsuit. Pow! Right in the kisser.
If you’re going to fight over earnest money, consult your
agent, the title company, and an attorney. And be prepared to take a few
knocks.
The opinions expressed are of the individual author for
informational purposes only and not for the purpose of providing legal advice.
Contact an attorney to obtain advice for any particular issue or problem. [where: 75230]
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