What happens when a buyer doesn’t pay the earnest money and/or termination option fee in a residential contract?
If the contract has been properly executed by all parties, there is still a binding contract even when the buyer hasn’t deposited the earnest money. The earnest money is not consideration for the contract.
However, if the buyer does not deposit the earnest money with the escrow agent within a reasonable time after contract execution, the buyer would be in default, and the seller could exercise her rights under a default provision.
The termination option fee is handled differently. If the buyer does not pay the option fee within the required three days, the only consequence is that the buyer does not have the option to terminate. The buyer is not in default, and the parties must continue to perform under the terms of the contract.