My client’s contract to sell his home fell through, and the buyer and seller disagree over who is at fault and who should get the earnest money that was deposited with the title company. Now my seller wants to put the property back on the market even though the earnest-money dispute hasn’t been resolved. What should I do?
Since the parties haven't agreed on the termination of the contract and no judge has decided the issue, you shouldn't give either party advice about the termination of the contract. Tell your seller to get advice from his attorney concerning the risks of proceeding with a subsequent sale of the property without a final settlement of the issue of contract termination.
The seller's primary goal should be to have formal termination of the contract. That ensures he can put the property back on the market and sell it to someone else without risking a lawsuit that could stop a subsequent sale of the property.
A contract can be formally terminated if both parties agree to terminate—usually in writing with a release-of-earnest-money form—or if a judge orders the contract to be terminated. Because of the potential risk of an adverse ruling by a judge concerning the seller's right to terminate the contract, title companies often refuse to open a second escrow file on a property where the first contract has not been formally terminated.
How does the mediation work? Who is appointed as a mediator and by whom? Who pays for its cost?
It’s a form of dispute resolution where both parties are agreeing to the process and they construct the resolution. It’s the most user friendly form of dispute resolution available.
I second Jose Alves. How does mediation work? I’ve never seen much information on this. Where are they held? Who assigns the mediator? Will we be provided background information on the person who is handling the mediation? What’s the cost and who is responsible for it?
Mediation companies are throughout major metropolitan areas . Private parties can enter into a mediation voluntarily or a judge and or court ruling can have both parties in a mediation before any legal court action takes place – we know word is a count room . It has been my experience mediations sometimes is not binding And or One of the parties can agree to something and then later explain why they were unable to make the right decision and then it still goes to court or hopefully there’s resolution most of the time . The quality of the mediators… Read more »
There are mediation organizations in most areas like Austin Mediation Association in Austin, or other areas sometimes known as dispute resolution centers. The Association will have a web site and list of mediators which should cover their background and experience. There are some costs to mediation in most instances, but it is usually less than the cost of litigation.
So what if a Termination of Contract has been signed and sent by the buyer along with a Release of EM? You have a buyer signed Termination of Contract at that point, you just don’t have an agreed upon Release of EM.
Yes, I have had that happen in the past, and finally the buyer and seller agreed on the disposition of the earnest money.
I wondered at the time if the home could have been put back on the market, since there was a termination. Would love to hear the response. This issue isn’t covered in the article.
I really want to see an answer to this as well. This puts the buyer in a huge bind. Buyer could terminate because the believe the seller is in breach, and then the contract is terminated and the seller would have no problem re-listing the house. But in this instance the earnest money would not be received back by the buyer if the seller refused to sign the release of earnest money. Seems all the risk is on the buyer losing money and the seller still gets to go sell their house!
Travis- I was thinking the exact same thing- Rodeana- Capital Title
The point of this article is to remind Agents to keep out of the dispute AND to advise and encourage your Client to seek Legal counsel. I always tell my Client at the very beginning of any signs of a legal dispute of EM that “my Broker nor the Law allows me to get involved in any way”. If the situation actually descends into an unresolved contract then I will inform my Broker and not do anything without consent.
So a buyer terminates, which they have the right to do in Texas. The earnest money dispute isn’t tied to termination, it’s tied to why, when, and how you terminated. Since a seller can’t terminate a real estate sales contract in Texas with the TREC form, it has to be one sided. This article implies they have to be tied together. If that is true, then why does TREC not provide a promulgated earnest money release form. The termination form only has a buyers signature. It doesn’t require the seller to sign it or even acknowledge receipt of it (like… Read more »
I agree. Im a TX agent I had it happen to a young lady- much later she became my client and told me about situation that occurred. She went under contract without an agent during option period the inspection showed her landlord/Seller(yikes) had possibly hid holes in walls with plywood and must have knew of horrendous termite damage covered it but was exposed in Inspections- this first time buyer filled out (finding online a form) for termination and requested earnest money. She was in option period. This landlord called police to temove her off property rent pd police did not… Read more »
TREC No. 50-0 , NOTICE OF SELLER’S TERMINATION OF CONTRACT is the form you are supposed to use in order for a seller to terminate the contract. Paragraph 15 lays out that either a buyer or seller can terminate a contract when the other is in default.
I appreciate this article, however my understanding is that mediation is not a tool for this type of dispute, only the courts can be asked to resolve this issue. Great point about the termination being sent at the same time as far as can you continue on the market.
This answer does not fully address the question. Of course the seller should be referred to an attorney and what then? Should the agent refuse to put the property back on the market unless and until their client consults with an attorney? What if their client insists? What if their client says their attorney said it was okay to put it back on? Stating that an attorney should be consulted is the easy part. The questions that follow deserve a response, even though they may be more difficult to address.
This question and its answer were both vague.
The earnest money dislike is one of the absolute worst parts of a contract failing through. The fact that both parties have to sign the release is ridiculous in my opinion. And that both parties have to sign is based on title companies and their insurance, because they don’t want to be the arbiters or which party is supposed to receive the EM. So, a TREC promulgated form would only work if title company attorneys bless it too. I really hope that some company steps up and makes this clear cut, because it would save a lot of headaches for… Read more »
Yes both parties have signed and I can’t get my earnest money from the buyer, what’s the point of earnest money if the buyer can refuse to release funds. He ties up my property and I’m out fees to relist and recon property for sale again.
Ultimately, the system was set up in a flawed manner. It should have been fixed many years ago. If the buyer is particularly nasty and without ethics, the buyer just refuses to sign and the buyer pretty much wins every time. The earnest money is never really at risk. I had a listing where the buyer understood the Checkmate position he was in. The buyer refused to sign. He knew we could not put the home on the market if he gave too much trouble or at least could drag it out until the homeowner HAD to give the money… Read more »
Mediation or court is only worth it if the earnest money is sizable. Buyer will normally send a Termination of Contract and a Release of Earnest Money form if the deal has fallen through. As a selling agent, you now have the contract terminated in writing by the buyer. Property can now be put back on market. I have also seen in the past where a 2nd buyer in line wanted to close her deal but the 1st buyer wasn’t budging on the termination without seller signing EM release. Title company was stuck. Seller went to another title company to… Read more »
I don’t think it goes to Dept of Ins.
Where does the earnest money go. And why can the seller go to another lender. Can I put out an email on this seller who flips homes and has done this before?
The Earnest Money is escheated to the State of Texas after 3 years.
So I know of this issue in many instances that the seller and buyer don’t agree. The seller accepted another contract and closes at another title company. The EM sits in escrow with othe title company. Eventually goes to unclaimed funds at state level.
What about the release of EM? In the case of my buyer – the new construction did not appraise – my client offered to come up some and the builder refused, then a few days later the builder said ok – by then my client had moved on. The builder refuses to release the EM and said the buyer must pay for the blinds – I have repeatedly asked for the blinds, but the builder will not respond (no blinds have been installed and the house is on the market.) This builder is holding my client hostage…………
I think the first step is to see if both parties will agree to mediate, which is already a part of their 1-4 Family Resale Contract. There are a number of mediators that specialize in real estate mediation, like me.
Can the mediator award all of mediation costs to one side or the other? I know contract says “share costs equally”, but is that just going in, or final? I ask because I have a scenario where buyer simply failed to give notice timely to terminate during option period. Their only argument is that they were just a “little late”. (Next day) Isn’t that a pretty cut and dry issue? It seems unfair to make a seller pay 1/2 of mediation cost just to determine that.
I am dealing with a relator that is finding it hard to return my deposit. It was the lack of income for denial of loan. The relator had me to sign contract already to have it release but now waiting on seller to sign. Also the seller has already put house back on the market and has a new contract. My relator explains he is still waiting for agent of seller to sign paper to release funds. Is this normal?
Paragraph 18c in the 1-4 residential contract says you can send a demand letter to the title company. They have to send to the other party in the transaction. They then have 15 days to respond to it.
I happen to see your post and wondering if you have a sample demand letter. Buyer was not able to get financed, so we did not close . Buyer now want Seller to extend closing until they resolve financing issue. Seller sent termination notice due to Buyer’s default under 1-4 contract closing date. (Houston, TX). Thank you.
How did you resolve?
I hope you have resolved your issue, but if you haven’t, her is some info for you. You can call title company and have them fill out a form to release your money within 120 days, all parties to contract will be notified and you will receive your money back.
I need to know how to file a complaint against a Tile company that lost my earnest money deposit. The Title Company stated that when I terminated the contract on a property that I did not want to purchase. They mailed the earnest money deposit back to me. The Title Company stated that they took the earnest money to the United State Postal Service and put it in a regular mailbox. The Title Company did not make a copy of the cashiers check that was given to them for earnest money and it was not put into the system since… Read more »
In my situation, looks like the title company never collected the earnest money and the day of closing they said the buyer of my property decided not to purchase. I ended with losing $4,500 to the purchase of my new home, losing money in inspections both house and pool and a lot of stress and emotional loos. I emailed the title company and they haven’t responded. What else should Ido?
What if the buyer backed out before appraisal ( so that’s not a reason) bad has the audacity to ask for it back after the 10 day option period ? Also after I packed up my whole house paid for movers an apt etc. to be out by closing. Basically I think he just found a similar house better offer . His realtor has no control over him and has sided with him and demanded the money back on his behalf. So tittle company is literally just a sitting duck. What’s next?
Buyer backed out after option period and refuses to release earnest money. What can I do for my sellers?
I have a formal termination letter sent over to the seller by the buyer (buyer was at fault for not qualifying for the loan). Buyer is refusing to release the earnest deposit to the seller. Because there is a formal termination letter, and based on what I just read there should be no problem proceeding with the sale of the same home to a different buyer correct?