Give me back my money: Releasing an earnest money deposit
You have been searching for months and have found your dream home, but suddenly something goes wrong and you want out. Before you do that, you want to make sure you can get back your earnest money deposit.
It is not easy for a purchaser to get back an earnest money deposit, after all, if it was, what would be the point? An earnest money deposit, or EMD, proves to the seller that the purchaser is serious about purchasing the property, since it provides a level of comfort to the seller that the purchaser is intending to complete the transaction.
Typically the deposit is held by either the title company or the real estate broker and is credited back to the purchaser on the HUD-1 Settlement Statement at closing.
However, when something goes wrong, the question often arises, how do I get my deposit back? The process is explained in Paragraph 4.B. of the GCAAR Regional Sales Contract.
The quickest and easiest solution is for both parties to sign a release of contract and provide in the release written instructions on the manner in which the deposit should be disbursed. If the two parties do not agree on how to release the funds, the matter must go before a court of competent jurisdiction, which will provide an order on how funds are to be released.
Neither the settlement company nor the real estate broker can determine who is right or wrong and release the deposit. They either need agreed upon written instructions by both parties or a court determination.
Even if it is obvious that one party is right and deserves the deposit, it cannot be released without one of the above. This may sound unfair, especially to a buyer who is clearly deserving of receiving back a deposit, but if the buyer and seller cannot agree, they need to have the court decide the outcome, not the settlement company.
Fortunately, in my experiences, the two parties typically come to an agreement before having to go to court since often it is not worth the time or expense to fight it out. However, it is a good idea for the purchasers to know that their deposit can be tied up for up to several months if things turn ugly.