Release of Earnest Money

Below is a short yet insightful portion from the latest Texas Association of Realtors (TAR) newsletter.  It covers a frequently asked question regarding the release of earnest money in a transaction.

Question: My client is a buyer who has given the seller a timely, written notice that he is terminating his contract to purchase the seller's home under the termination option of the contract (Paragraph 23). The seller is upset and will not sign the appropriate form releasing the earnest money to the buyer. What can the buyer do to get his earnest money


Answer:  The buyer could make a written demand under the provisions of Paragraph 18 of the TREC contract. That paragraph provides that the escrow agent will be released from liability by each party to the contract if the escrow agent disburses the earnest money upon the written demand of one party where the other party does not object to that disbursement in writing within 15 days after notice to the other party is given by the escrow agent.

While this provision covers only those situations where the other party does not object in writing to the disbursement or has not made a written demand for the earnest money, following this procedure might result in the escrow agent releasing the earnest money to the buyer. If the seller were to make a written objection to the disbursement or make a written demand for the earnest money, the buyer would have written evidence to substantiate the seller's wrongful refusal to release the earnest money. This might make it easy for the buyer to recover the liquidated damages stated in Paragraph 18: three times the amount of the earnest money, the earnest money, reasonable attorney fee’s and all costs of suit.

Although the amount of earnest money involved in any given transaction may not be very substantial, the losing party in any suit litigating this issue under the provisions of Paragraph 18 could end up losing far more than just the amount of the earnest money held by the escrow agent.

For other legal topics, visit the Legal FAQs on www.TexasRealtors.Com.