Q: If a contract contains a rescission (“cooling off”)
period, can I get my earnest money back if I cancel the
contract during that time?
A: Probably; however, most purchase contracts do
not have a rescission period. Only in certain kinds
of transactions will you be allowed (for a limited
time) to cancel the contract. These transactions
include developer offerings of condominiums,
timeshares, and interstate land sales; and where
a seller fails to give you certain disclosures in a
timely manner, including the Residential Property
Disclosure Statement Mineral and Oil and Gas
Rights Mandatory Disclosure Statement, and, (for
properties built before 1978) the lead-based paint
disclosure. These rescission rights are usually
created by state or federal law. The amount of time
varies but is typically only a few days. You should
consult your own attorney about rescission rights in
such transactions.
cancel the contract for any reason or no reason prior to
the expiration of the “due diligence period" agreed to
by the parties. If you cancel the contract during the due
diligence period, you will get a refund of your earnest
money deposit, although you would lose any fee you
paid for the right to terminate during the due diligence
period, and any fees paid to third party vendors for
items such as inspections.
Q: Under the standard Offer to Purchase and G)n tract,
do I get my earnest money back if the transaction does
not close?
A: It depends on why the contract isn’t
consummated. If the transaction does not close due
to your inability to fulfill your contractual obligations
(such as your failure to obtain necessary financing),
the seller would be entitled to retain the earnest
money deposit plus any due diligence fee, but would
not be entitled to any other damages. Conversely,
if die transaction does not close due to the seller’s
material breach (such as the inability to deliver
marketable and insurable title), the buyer would lie
entitled to recover the earnest money deposit and due
diligence fee, together with reasonable costs actually
incurred by you during the due diligence process
(for example costs incurred for a survey and property
inspection) in addition to other remedies available at
law.
Q: Isn’t there a federal law that allows me to rescind
my home loan and get my earnest money back?
A: No. Although there is a federal law that gives
you three days to cancel a home loan commitment,
it does not give you the right to cancel a purchase
contract and get a refund of your earnest money.
Your obligation to purchase as set forth in the sales
contract Is unrelated to your right to oil tain the
best possible loan or avoid a loan that has hidden
conditions. However, the standard Offer to Purchase
and Contract form has a provision allowing you to
Q: What if the contract fails and the seller and I cannot
ree on who is entitled to the earnest money?
: According to the terms of the standard Offer to
Purchase and Contract and the rules governing real
estate brokers, if there is a dispute between you and
the seller over the return or forfeiture of an earnest
money deposit, the escrow agent holding the money-
must continue to hold the funds in trust until you
and the seller resolve the dispute in writing or until
a court decides the matter (less than $10,000, Small
Claims Court; more than $10,000, usually District or
Superior Court although some cases may go to federal
court). The parties may also resolve disputes through
voluntary or court-ordered mediation. Alternatively,
the escrow agent may choose to pay the disputed
funds to the Clerk of Court in the county where the
property is located after first providing 90 days written
notice to you and the seller If the disputed kinds are
deposited with the Clerk of Court, you would have to
initiate a special proceeding with the Clerk to recover
the funds. If no one institutes a special proceeding
w-ithin a year of the funds being deposited with the
Clerk, it will be deemed unclaimed and delivered to the
State Treasurer’s Office as escheated funds.
When a form other than the standard Offer to
Purchase and Contract is used, it may allow the seller
access to the money whether or not the closing occurs
as scheduled. In any event, w-hile a broker Is not
allowed to pursue a claim for earnest money for you,
the broker may appeal' as a witness in court.
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THE NORTH CAROLINA
REAL ESTATE COMMISSION
P.O. Box 17100 • Raleigh, NC 27619-7100
Phone:
919/875-3700
• Website: www.ncrec.gov
0,000 copiesof ibis public document were printed ul a cost o/S.000 per copy.
Questions and Answers on:
EARNEST MONEY
DEPOSITS
REC 3.51 •
7/31/20
A publication of the North Carolina Real Estate Commission
