to obtain a refund of the earnest money under any
circumstances. Therefore, you must read every
contract form carefully and consult with your
attorney if you have questions.
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 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.
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 obtain 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 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.
Q: Under the standard Offer to Purchase and Contract,
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 the 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: What if the contract fails and the seller and I cannot
agree on who is entitled to the earnest money?
A: 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 broker 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 $5000, Small Claims Court; more
than $5000, 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 broker holding
the money 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 funds 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 within
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.
If an attorney for you holds the earnest money,
the attorney must hold or dispose of the funds in
accordance with the rules of the North Carolina State
Bar. 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, while a broker is not
allowed to pursue a claim for earnest money for you,
the broker may appear as a witness in court.
The North Carolina Real Estate Commission
P.O. Box 17100
Raleigh, North Carolina 27619-7100
919/875-3700
Web Site: www.ncrec.gov
Questions and Answers on:
EARNEST MONEY
DEPOSITS Ira
0.000 copies of ibis public document were printed at a cost of S. 000 per copy.
REC 3.51
6/1/12
