TITLE TIPS

Non Refundable Earnest Money Deposit

Basics:

Known as Early Release of Earnest Money Funds to escrow, the intent is that upon opening of escrow the earnest money is to be released to the Seller and is non-refundable should the Buyer fail to perform according to contract.

 

Problem:

Due to the Privacy Act, banks will no longer confirm funds on a personal check. Therefore, it is essential that earnest money be deposited in the form of certified funds or wire transfer.

Other elements of the contract may directly contradict this element:

CONTINGENCIES: If the buyer and seller have agreed in contract that the buyer has 14 days to have a home inspection and may end the deal on the basis of that report does the earnest money get returned?

FHA AMENDATORY CLAUSE/VA SUPPLEMENT: HUD has stated that the buyers earnest money must be refunded if buyer can not qualify for the loan so it should supercede the contract.

INTENT: Often escrow encounters a buyer who believes the earnest money is to be credited back to the buyer when the contract has been fulfilled by recordation of deed. Is that the same understanding of the Seller?

 

Solution:
Always require certified funds when requesting a non-refundable earnest money deposit.

Understand that you can't have contingencies and early release of earnest money. Either remove all contingencies or make earnest money non-refundable after the contingency period.

FULLY DISCLOSE IN WRITING WHAT WILL HAPPEN WHEN AND GET THAT SIGNED BY BOTH BUYER AND SELLER