What your buyer can do to get her earnest money back after termination

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A hand holds several $100 bills.

03/24/2016 | Author: Editorial Staff

My buyer gave the seller a timely, written notice that she’s terminating the contract under the termination option in Paragraph 23 of the One to Four Family Residential (Resale) contract. The seller is upset and won’t sign the TAR Release of Earnest Money form. What can my buyer do to get her earnest money?

Under the provisions of Paragraph 18 of the contract, your client could make a written demand to the escrow agent that the earnest money be released. As long as the seller doesn’t object in writing to that disbursement within 15 days after the escrow agent provides a copy of your client’s demand to the seller, the escrow agent may release the funds to your client. Following these steps for disbursement releases the escrow agent from liability related to the disbursement.

If the seller does make a written objection to the disbursement, or his own written demand for the earnest money, the buyer will have written evidence to substantiate the seller’s wrongful refusal to release the earnest money. This might make it easier for the buyer to recover the liquidated damages stated in Paragraph 18:

  • Damages
  • The earnest money
  • Reasonable attorney fees
  • All costs of suit.

Although the amount of earnest money involved in any given transaction may not be substantial, a party who wrongfully fails or refuses to sign a release could end up liable for more than just the amount of the earnest money held by the escrow agent.

Read more legal Q&As on texasrealestate.com.

Categories: Legal
Tags: legal faq, earnest money, terminate contract


David Davis on 10/11/2016

Radford Pannell,
To begin with it sounds to me like you should have hired a REALTOR® to represent you in this transaction.  However, since you chose not to do so, now your only choice is going to be to hire an Attorney!

This matter has gone way beyond the scope of what a REALTOR® is allowed to do, and is wondering off into the practice of law.  It’s going to take litigation or mediation at the very least to get this resolved, none of which is a REALTOR® allowed to do.

If you want the name(s) or phone number(s) of some real estate attorney(s) let us know what area you are in, or you can contact the State Bar of Texas through the www and search one out.  You local Young Lawyers Association maybe able to help you.  You can find out how to reach them by contacting the County Operator or County Clerk where you live.

Radford Pannell on 10/11/2016

Yes, can I sue over my earnest money?  We had an oversight and had to have another appraisal done before we could close.  The seller just slowly denied an extension, except only if we used her realtors loan company would she consider an extension.  That wasn’t feasible for me because all I had to do was pay for another appraisal, had it done under FHA regulations and signed.  So she never contacted me back.  I left messages and tried to call her listing agent and to no avail, nothing.  Now the date to close has pass and I’m out of my money, which I’d like to have returned $1500 and even the $250.  Where do I need to go or who do I need to contact about this matter?

David Davis on 07/22/2016

If it comes to litigation, you need to hire an Attorney and I would strongly recommend taking this into Justice Court, not Small Claims.  Small Claims is a very relaxed enviorment and for the most part litigants are allowed to “tell their story any way they please without regard for the rules”.  In Justice Court the Rules of Civil Procedure must be followed.  In most cases in Texas, both Courts are in the same location, and heard by the same Judge/Justice but under different rules.  You want the rules in place.

David Davis on 07/22/2016

Depending on the situation there is no reason for title to send the money to the State’s Unclaimed Money Fund unless one of the parties really drops the ball here.  It sounds as if there were REALTORS® on both sides, so they should be able to advise both parties what to do next.  In any case, small claims is the VERY LAST place you would want to resolve this for one very simple reason.  You want the highest degree of standards enforced.  You will NOT get that in SMALL CLAIMS COURT.  In most cases Justice Court takes place in the same location, but under a different set of rules.  It’s called the Texas Rules of Civil Procedure.

Kris C on 07/22/2016

@Nita. Thanks for your insights. I hope it does not come to that either!

Nita on 07/22/2016

Technically the title company will eventually send the money to the state and you’ll have to go to small claims court to have the courts decide who’s entititled to the money. It’s sad to say it comes to that.

David Davis on 07/22/2016

Becasue you already have a REALTOR® you are going to have to direct your questions to that person, or dismiss them and then seek someone else to help you.
David Davis

Kris C on 07/22/2016

@Nita, thanks for your reply. I will check on the financing contingency. I assumed it had expired but can say 100%. My realtor is on vacation right now but I am worried about it and prefer not to fight over it but I am out so much money myself and he just seems to have gotten worried and backed out.  What happens if we both don’t agree?

Nita on 07/22/2016

@ Kris

By the terms of the situation you described, it sounds like the buyer may not be entitled to earnest money being released but yhere are other circumstances that may affect this answer. Was the financing contingency expired as well? If the lender would not give him a letter of denial for the loan, were there any other contingencies the buyer may have had that have him the right to terminate and have his earnest miney returned. Speak with your agent and possibly their broker before making any decisions on whether to release the earnest money. You may also want to contact an attorney to confirm your situation. I hope things get resolved for you soon.

Kris C on 07/22/2016

One additional item to the question below.  My buyer switched lenders during the process so thinks he had an additional option period as a result but the closing date never changed and my realtor never said there would be a change. He got mad at his bank and decided to go somewhere else. It was not that the bank, he just had some issue with the way they were handling his business.

Kris C on 07/22/2016

My buyer backed out and wants his 3500 earnest money back.  The option period has expired and we were one week away from closing. Is he entitled to this? As a result, I was under contract for another home and had to back out and forfeited my money. He is claiming his business is now shaky and he does not want to take on the debt. He asked the lender to write a letter saying he could not pay. The lender would not do it since the guy is approved, has no debt, credit rating that exceeds 800, and no sign that he is not making money.  I held up my house for 30 days because of this person and would like to recoup my expenses.  What is the process and am I going to have to let it go?

David Davis on 07/15/2016

Shanna Allen,

You are certainly welcome to choose anyone you wish to work with to represent you.  I strongly suggest you make sure they are actually are a REALTOR®.  Working with a family member or friend can have very large consequences, in fact, some brokerages have policies that will prohibit it due to liability concerns.

I’m glad you got your money back.

Good Luck.

Shanna Allen on 07/15/2016

Thanks David ... I plan to work with a family member now. I did contact the realtors broker and the Brokering Partner actually returned my earnest money to me so I am very thankful and hoping to become a home owner soon having learned some VERY VALUABLE lessons!!!

David Davis on 07/12/2016

Shanna Allen
If you wish to talk on the phone, and you have released your REALTOR® I can be reached at (281)333-1226.  I am a REALTOR® in the Houston area.

Nita on 07/12/2016

@Angry without a home

I can definitely understand your frustration. I hope your current realtor is taking care of you the way you need them to. This is a crazy market right now in most parts of the state. I am sure you will find a home that fits your needs and in the end, you will be happier with your decision. Good luck and please keep us updated on the earnest money outcome.

Shanna Allen on 07/12/2016

Nita and David,
Thank you for your response. I am no longer being represented by the realtor and I have contacted his broker. Thank you so much. Its so disheartening to finally find a home, invest time and money, only to have things end like this. I am a first timer so I definitely was not prepared to have things go so wrong; again trusting that my realtor had my best interest at hand has been such a let down.

Nita on 07/12/2016

@Angry Without a Home

It sounds like there may be issues that need to addressed with your entire experience. I would suggest calling and speaking with the broker of the agent you were working with first. Try to determine with the broker if there are any deadline contingencies you had that gave you the option of terminating with rights to the earnest money. If you don’t get anywhere with that, you could request mediation with the seller to determine why they feel they are entitled to the earnest money.

David Davis on 07/12/2016

Dear Angry without a home,

It sounds to me as if you may need to hire an attorney.  Is your REALTOR® still representing you?

Shanna Allen on 07/12/2016

My realtor initiated my contract with a buyer approval 15 day third party addendum; accordingly because he thought I was already approved for a USDA loan. The following day following the contract being accepted, the realtor became aware that I was not approved; at this point he did not change the contract and proceeded. My financing was shaky and requires me to pay off more debt or secure a co-signer; however, my realtor informed me that the seller no longer wants to work with the lender and suggested I terminate the contract with a release of earnest money to me and pursue the deal for the property with another lender and full closing cost coverage on the sellers part. Upon signing the termination and release of earnest, my realtor then turns around and states the seller has decided to not RELEASE my earnest money and now wants me to sign a new release to the seller. There has been a plethora of issues with this deal including the seller being a realtor and the property not being listed on HAR, my realtor not being proactive on a number of things such as: no builder information, no comps provide, offering my full price loan amount without negotiations. I feel I trusted someone who failed me miserably. Is there anything I can do to get my earnest money? Is this negligence? Do I need a lawyer?


Angry without a Home

Richard Weeks on 03/28/2016

Dear Concerned,
I am concerned that you would not use your real name.

Nita Shinsky on 03/25/2016

This is the main reason I suggest to my buyer’s they don’t offer earnest money be deposited until after the option period expires. This eliminates this potential dispute.

David Davis on 03/24/2016

@Rick.  You are spot on.  In fact I do not think the seller has anything to do with it during the option period.  In otherwords, the seller doesn’t have to sign or agree to anything during that option period.  If the buyer gives notice in accordance with the paragraph 21 during the option period then the notice is considered effective.  The problem is many title companies are going to hold out till both parties sign off on that release or there is a court order.  Of course the problem with that is, those title companies just might find themselves in court as Dedendants!

Rick Sheffield on 03/24/2016

Termination during the option. Does not require a release of earnest money to be signed by the seller. If you read the termination form, you will see that it says that the release of the earnest money is dictated by the terms of the contract. Paragraph 23 clearly states that the earnest money is to be refunded to the buyer

Concerned on 03/24/2016

Really? Escrow Money?

Deborah B. on 03/24/2016

Seller is also doing themselves a disservice by not releasing the escrow money so they can put their property back on the market in this active market.  It is tied up as long as their is escrow money.

Deborah B. on 03/24/2016

If terminating during the option period,  the Buyer has an unrestricted right to their Escrow Money to be refunded.

Mark McNitt on 03/24/2016

I understand there is a provision in the EM contract that if the Seller does not respond and you send request to the title company, they can release the EM in 30 days if the Seller does not respond to them.  Other than that, we must tell the Buyer to seek legal advise.  You as an agent can keep an eye on the status of the home.  If the home were to go “pending” again, you could reach out to the new title company and advise them the home already has a contract in file at another title company.  Not sure if that would do anything, but might cause a bit of a head-ache for that Seller and force them to sign the EM release with the first buyer.

David Davis on 03/24/2016

I an unrelated matter (while representing a seller) wherein the case wound up in Court, the Judge ruled that becasue the Seller had signed the release of earnest money (the seller presented the form to the buyer for release to the seller as the buyer did not perform under the terms of the contract), the Judge said that the promulgated release had released all parties from any liability.  I think this was an error on the part of the Judge, but my seller client did not elect to pursue it any further.  This was a JP judge in Harris County where the Defendant lived.

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The material provided here is for informational purposes only and is not intended and should not be considered as legal advice for your particular matter. You should contact your attorney to obtain advice with respect to any particular issue or problem. Applicability of the legal principles discussed in this material may differ substantially in individual situations.

While the Texas Association of REALTORS® has used reasonable efforts in collecting and preparing materials included here, due to the rapidly changing nature of the real estate marketplace and the law, and our reliance on information provided by outside sources, the Texas Association of REALTORS® makes no representation, warranty, or guarantee of the accuracy or reliability of any information provided here or elsewhere on texasrealestate.com. Any legal or other information found here, on texasrealestate.com, or at other sites to which we link, should be verified before it is relied upon.

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