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Selling a Home and the Buyers Deposit, Who Gets to Keep it?

October 4, 2014 By Leave a Comment

earnest money depositMy law firm often receives calls from sellers regarding buyers who they were in contract with and who cancelled for some reason.  The sellers expect to get the security deposit held with the Escrow Company, but are being told that they can’t get it and are upset.

Their frustration is understandable; they had their house on the market and received an offer. The terms were agreed upon and they were officially in escrow.  This means it was off the market and they were no longer actively marketing it to potential buyers.  When a buyer cancels it puts the seller at square one with their house back on the market and facing questions from other buyer’s agents as to what happened. It puts a blemish on the marketing of the home that then needs to be explained.

I find that most sellers assume that if a buyer cancels for any reason the seller gets the deposit.  The answer is a lawyer’s favorite…it depends.

There are a few situations where a seller can keep the buyers security deposit;

  1. Non-contingent offer.  This is rare.  This means there are no buyer contingencies like getting a loan, selling their home, inspections, and/or appraisal.  In our area/market most buyers will not submit a non-contingent offer because it puts them at risk of losing their deposit, etc.
  2. An offer that had contingencies and the buyer has released them.  These offers are most common, but what ends up happening is that the actual release of contingencies was never obtained by the seller’s agent.  While the contract has timelines that indicate contingencies should be released within x number of days – typically the buyer’s agent doesn’t officially release those contingencies in writing.  The misconception is that they automatically are released.  In most cases the selling broker/agent must legally compel the buyer to release the contingencies by serving a notice to perform to that end.  If the seller doesn’t have a signed release of ALL contingencies then in most cases they cannot legally keep the deposit.
  3. Buyers were acting in bad faith. This can be difficult to prove and depending on the contact damages may be limited by the liquidated damages clause.

I find that often sellers agents do not fully understand what the release of contingencies is, or how to go about making sure it is properly perfected. When I represent sellers as their attorney and their agent these matters are paid attention to; the dates are calendared and the contracts are sent timely in order to keep the buyers in line with the terms of the purchase contract and to protect the seller.

Experienced Sacramento Real Estate Attorney and Sacramento Realtor

Sarah is a licensed California Attorney, and Sacramento Realtor with StoneCrest Realty. StoneCrest Realty is a full service residential and commercial real estate brokerage. Click the link to view the StoneCrest Realty blog.

Her practice centers on transactional real estate work. She represents developers, investors, and individual buyers and sellers and their funds in a wide range of matters including acquisitions, dispositions, development, leasing, financing, short sales, general real estate transactions and foreclosures. Her clients range from individuals, investors, corporations, and institutions across all asset classes of real estate, including residential, multi-family and commercial.

Contact Sarah by calling 916.378.5760. Attorney, broker at StoneCrest Realty. DRE License # 01704912.

The information on this blog is not, nor is it intended to be, legal advice. Please contact us to obtain legal advice pertaining to your situation. The transmission of information by this blog does not create an attorney-client relationship with the law firm’s attorneys. The relationship would require direct contact between you and the firm, and would also require a written attorney/client agreement that confirms that a relationship is established for legal services to be provided. The invitation to contact the firm is not a solicitation to provide professional services, and should not be construed as a statement as to the availability of any attorneys to perform legal services in any jurisdiction in which such attorney is not permitted to practice. None of the communications transmitted via the blog constitutes a confidential communication, or creates an attorney-client relationship. This blog contains information on legal issues, and is not a substitute for legal advice from a qualified attorney licensed in the appropriate jurisdiction.

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Attorney, Broker, CEO
A licensed California Attorney, Sacramento Realtor and co-founder of StoneCrest Realty. StoneCrest Realty is a full service residential and commercial real estate brokerage. In addition to the brokerage, she is the founding attorney of StoneCrest Law Firm. Her practice centers on transactional real estate work. She represents developers, investors, and individual buyers and sellers and their funds in a wide range of matters including acquisitions, dispositions, development, leasing, financing, short sales, general real estate transactions and foreclosures. Her clients range from individuals, investors, corporations, and institutions across all asset classes of real estate, including residential, multi-family and commercial. Contact her by calling 916.999-1376. Attorney at StoneCrest Law Firm, Broker at StoneCrest Realty. DRE License # 01704912.
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The information on this site is not, nor is it intended to be, legal advice. Please contact us to obtain legal advice pertaining to your situation.

The transmission of information by this Website does not create an attorney-client relationship with the law firm’s attorneys. The relationship would require direct contact between you and the firm, and would also require a written attorney/client agreement that confirms that a relationship is established for legal services to be provided. The invitation to contact the firm is not a solicitation to provide professional services, and should not be construed as a statement as to the availability of any attorneys to perform legal services in any jurisdiction in which such attorney is not permitted to practice.

None of the communications transmitted via the Website constitutes a confidential communication, or creates an attorney-client relationship. This Website contains information on legal issues, and is not a substitute for legal advice from a qualified attorney licensed in the appropriate jurisdiction.

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