You might be under contract on a home or recently terminated a contract and wondering how the release of earnest money is handled.
While it is generally a straightforward process, it can get a bit murky.
Hopefully, this will answer some questions about the deposit, how to get it back, and what to do if you don’t get your deposit back after the contract is terminated.
What exactly is Earnest Money, and When Can it be Refunded?
- In the realm of real estate, earnest money denotes a sum of money submitted by a buyer to a seller as a demonstration of the buyer’s genuine intention to acquire the property;
- This monetary pledge is typically held by a neutral third party, often a title company, until the concluding stages of the transaction between the buyers and sellers;
- If the buyer opts to withdraw from the purchase agreement, there’s a possibility of forfeiting this deposit;
- Conversely, if the seller decides not to proceed with the transaction, they might be obligated to reimburse the earnest money to the buyer.
In its essence, earnest money embodies a gesture of trust and commitment. The quantity of earnest money tendered in an offer can serve as an indicator of the buyer’s level of seriousness regarding the purchase. Nonetheless, certain scenarios exist where the seller might be within their rights to retain the earnest money.
To illustrate, should the buyer opt to withdraw before the option period concludes, the earnest money is typically fully refundable to the buyer. Conversely, if the seller withdraws from the arrangement following the expiration of the option period, usually due to reservations or a shift in perspective, they might retain the funds. This scenario could also arise if the seller neglects to fulfill obligations outlined in the contract. In these situations, the buyer has the chance to void the agreement and obtain a reimbursement of the earnest money.
The termination of the contract could stem from a variety of reasons, and the comprehensive details are encompassed within the TREC One to Four Family Residential Contract.
The Procedure for Refunding Earnest Money
You’ve stumbled upon a stunning home, and the seller has endorsed your offer – a moment of celebration! However, your agreement came with a financing contingency, allowing you an exit route if your financing plans falter.
And falter they did. What’s the next step?
As the buyer, you need to complete a formal “Notice of Buyer’s Termination of Contract” form. This document serves as an official announcement to the seller that you’re retracting from the home purchase, citing any applicable reasons. It’s crucial to note that this notice doesn’t stipulate whether the deposit will be returned or not; it merely communicates your decision to withdraw from the deal. The actual return of the deposit depends on the specifics outlined in the contract.
Once either the buyer or the seller terminates the contract, the buyer will proceed to sign and submit a “Release of Earnest Money” form (TAR Form 1904) to the listing agent. It’s important to clarify that this form is provided by the Texas Association of Realtors (TAR), not TREC. I’ll delve into that distinction shortly.
Upon the seller’s endorsement of the release form, it’s then forwarded to the title company, effectively releasing the earnest money to you, the buyer.
Nevertheless, there are instances when the process of releasing earnest money is not as straightforward and transparent as it may seem.
What Occurs When the Seller Withholds the Deposit?
In the event that the seller chooses not to release the earnest money, regardless of the rationale, the matter typically escalates to legal channels.
Recall the offer you submitted? It constitutes a binding contract, outlining the terms of the agreement and any contingencies you, as the buyer, included. Occasionally, circumstances might become ambiguous, leaving both parties uncertain about whether the title company should disburse the earnest money.
In such instances, your optimal recourse is to engage a reputable real estate attorney. They possess the expertise to examine your contract, listen to the intricacies of the situation, and ascertain whether a viable legal case can be pursued.
TREC’s Stance Regarding this Issue
- TREC lacks jurisdiction over title companies, the entities responsible for holding earnest money;
- Additionally, TREC abstains from intervening in earnest money conflicts.
This approach is appropriate since, by this stage, the contract holds sway over the destination of the funds. If a dispute arises concerning the contract and the associated funds, the recourse often involves initiating legal action against the seller.
Once more, I emphasize the importance of contacting a real estate attorney. They will expertly navigate you through the legal procedures and offer valuable counsel in this regard.
Conclusion
Furthermore, TREC lacks the authority to dictate the procedures title companies adopt for releasing earnest money. To sidestep any ambiguity or complexities linked to the release of your deposit, it’s advisable to seek counsel from a real estate attorney. They can meticulously assess your contract and furnish you with well-informed guidance concerning the available courses of action.
If you’re in the process of preparing to purchase a property and have yet to secure an agent, don’t hesitate to make contact. I’m available to assist you in navigating the journey of discovering the perfect home at the fitting price point.
