A residential real estate transaction is a major financial undertaking. There are numerous documents that influence real estate transactions, and those who prepare properly may have few issues reaching the closing table.
Unfortunately, some closings do not occur as scheduled. Changes in the buyer’s employment or issues with the property might lead to a canceled closing. Those who had hoped to purchase real property may then find themselves negotiating for the return of their earnest money. Sometimes, conflicts about earnest money may require litigation before a resolution can be reached effectively.
When earnest money is at risk
Earnest money is a representation of a buyer’s sincere desire to complete a transaction. Typically, buyers deposit anywhere from 1% to 3% of the total purchase price offered for a property as earnest money. Those funds may apply toward their down payment when they finalize the transaction.
However, sometimes issues prevent the closing from occurring. In such scenarios, sellers who now need to relist their real estate for sale might attempt to retain some or all of a buyer’s earnest money as compensation for the delay and inconvenience of needing to re-list the property. The loss of those funds could derail someone’s plans to move on and purchase a different property. Buyers typically expect to retain their earnest money if they canceled the closing for a legitimate reason, such as an inability to secure a mortgage for the property due to undisclosed defects.
Sometimes, the seller or their agent automatically refunds earnest money after a canceled closing. Casual communication can help resolve minor complications or delays in some cases. If the seller does not voluntarily release the earnest funds, the buyer may need to go to court and prove that they deserve to reclaim those funds.
For example, the seller may try to challenge the validity of the buyer’s decision to cancel the closing by questioning the contingencies included in the offer the buyer made. In some cases, sellers and their agents simply refuse to work with a buyer after a canceled closing, making it necessary to go to court. Those who have the right help can potentially reclaim the funds set aside as part of a failed home purchase.
Ultimately, pursuing the return of thousands of dollars in earnest money may sometimes require real estate litigation in New York.