When a sale falls through, the title company may still hold the earnest money while buyer and seller both demand it. The deposit does not automatically belong to the seller because the buyer did not close. Nor is it always refundable because the buyer changed plans. Start with the signed contract, its addenda, the effective date, and the reason the transaction ended.
A Timely Termination Is Different From a Default
For example, the current Texas Real Estate Commission One to Four Family Residential Contract (Resale), form 20-19, gives a buyer who paid the option fee on time an unrestricted right to terminate by giving notice within the agreed option period. The form requires that notice by 5 p.m. local time on the specified date. A timely option termination generally returns the earnest money to the buyer while the seller keeps the option fee. A financing addendum, title objection, or another contractual provision may create a separate termination right with different requirements.
If neither party has a valid termination right, the default terms matter. Under paragraph 15 of that resale form, a seller facing a buyer’s default may elect to seek specific performance or other relief, or terminate and receive the earnest money as liquidated damages. If the seller defaults, the buyer may seek specific performance or other relief, or terminate and receive the earnest money. The actual contract may be a different TREC form or a negotiated agreement, and amendments can change the result.
The Title Company Needs a Basis to Release the Money
Paragraph 18 of form 20-19 sets out a release and demand process. After termination, a party or the escrow agent may circulate a proposed release. If one side will not sign, a party may submit a written demand to the escrow agent. When only one party demands the money, the escrow agent provides the other party a copy; if no written objection is received within 15 days, the agent may disburse under the form’s terms. A timely objection can keep the deposit in dispute. The form also addresses potential consequences for wrongfully refusing to sign a proper release.
Preserve the Documents Before Making a Demand
- The signed contract, all addenda and amendments, and the effective date.
- Proof of when earnest money and any option fee were delivered.
- The precise termination notice and proof of delivery to the contract’s notice address.
- The inspection, financing, title, or closing communications relevant to the claimed right.
Read the notice clause carefully and avoid treating a phone call or text to the agent as a substitute for the required notice. The resale form also calls for mediation of disputes that informal discussion does not resolve. A short, document-based analysis early in the dispute may save more than the deposit is worth in legal expense.
Fields Law represents buyers and sellers in Central Texas contract and earnest money disputes.
