Earnest Money Abandoned from an Unexecuted Contract Should

Earnest Money Abandoned from an Unexecuted Contract Should be Handled Properly

When a buyer decides to purchase a property, they typically put down earnest money as a sign of good faith. This money is held in escrow and is meant to show the seller that the buyer is serious about the transaction. However, there are times when a contract is not executed, and the earnest money is left abandoned. So, what should be done with the earnest money in these cases?

First, it`s essential to understand what happens when an agreement is not executed. If the buyer and seller have not signed the contract, the earnest money should be returned to the buyer. The buyer has a right to the money, as it was put down in good faith. If the contract has been signed, but the deal falls through due to a contingency that is not met, the earnest money should be returned to the buyer as well.

On the other hand, if the buyer breaches the contract, the seller may be entitled to keep the earnest money as damages. This is because the buyer has failed to uphold their end of the agreement, and the seller has lost time and money. However, the seller will need to prove that the buyer breached the contract and that the earnest money is a reasonable amount of compensation for the damages incurred.

In some cases, it can be challenging to determine who is entitled to the earnest money. For example, if the buyer breaches the contract, but the seller fails to sell the property to another buyer within a reasonable amount of time, the buyer may be entitled to a return of their earnest money. This scenario is less clear-cut, and a legal professional should be consulted to determine the best course of action.

It`s also important to keep in mind that some states have specific laws governing the handling of earnest money. For instance, in California, earnest money must be held in a neutral escrow account. If a dispute arises, the funds will be held until a resolution is reached. Other states may have different requirements, so it`s important to consult an attorney familiar with real estate law in your state.

In summary, earnest money abandoned from an unexecuted contract should be handled properly to avoid any legal disputes. If the contract has not been executed, the buyer is entitled to the earnest money. If the contract has been signed, but the deal falls through, the buyer is entitled to a return of their money. However, if the buyer breaches the contract, the seller may be entitled to keep the earnest money as damages. It`s important to consult a legal professional in cases where it`s not clear who is entitled to the earnest money.