Sales of real property involve a significant investment. Real estate transactions change people’s lives and require extensive planning. As such, sellers like to know that buyers are serious when they make an offer to purchase property. Often, a buyer will tender a down payment with the signed real estate contract— also called earnest money — to show the seriousness of their offer to purchase.
If a buyer backs out of a purchase agreement at the last minute or without valid cause, the earnest money may be forfeited to the seller. At the law office ofRosado, Apat & Dudley, our real estate attorneys represent parties in disputes regarding the return or forfeiture of down payments.
How Earnest Money Is Handled
Most contracts have certain contingencies that allow a buyer to walk away from the purchase of a property, for example if the buy cannot in good faith obtain a loan. If a buyer walks away from a purchase agreement for a reason that is not listed in the contract as a basis to withdraw, it will be more difficult to have the earnest money returned. Earnest money is generally paid into an escrow account held by the seller’s attorney.
Common contingencies that are written into a contract for sale that provide for a return of earnest money to a buyer include:
- Appraisal of the property— VA loans protect a buyer’s earnest money by stipulating that an appraisal cannot come in below the sale price.
- Passing a property inspection— If an inspection reveals unsatisfactory conditions, the earnest money should be returned.
- Obtaining financing— Earnest money is refunded if a buyer does not qualify for a loan. Many buyers are prequalified.
- Selling a current property— Many buyers cannot afford to own two properties, so they write a contingency into the contract that they must sell their own property. If that doesn’t happen, the earnest money is usually refundable.
Let Us Review Your Case
We welcome the opportunity to review the facts of your real estate matter and provide a candid assessment of what you can expect. Our lawyers represent both buyers and sellers throughout the New York metro area in these disputes. Call800-471-4878 or use ouronline contact form to schedule a consultation in our Freeport office or any of our other locations.
