Understanding Earnest Money and Your Rights in Real Estate Transactions

Are you a prospective homebuyer or seller in the Denver area? Did you think you found the perfect deal but now worry that an inspection or appraisal might reveal issues or lower the property's value? Are you aware of the deadlines associated with Earnest Money disputes? GLO specializes in guiding buyers and sellers through the legal complexities of real estate transactions to protect their rights and obligations.

What is Earnest Money?

Earnest Money is a deposit made by the buyer to show their good faith in purchasing a home. This amount is submitted with the offer to demonstrate the buyer’s serious intent and is typically applied toward the purchase price at closing. Earnest Money is held by a neutral third party, such as a title insurance company (the Earnest Money Holder), and provides time for:

• Securing financing

• Conducting a title search

• Performing a property appraisal

• Completing inspections

Earnest Money is essentially a good faith deposit that protects both parties during the transaction.

Can I Get My Earnest Money Back?

Yes, you can recover your Earnest Money Contribution if you terminate the Purchase Contract according to its terms and deadlines. Common reasons for termination outlined in the contract include:

• Title document objections

• HOA document objections

• Loan terminations

• Appraisal objections

• Survey objections

• Inspection objections

The first step is confirming your termination reason is allowed under the contract. Then, you must provide the seller with written notice of termination before the applicable deadline. Missing this deadline waives your right to terminate, and the contract remains enforceable.

How Do I Terminate the Purchase Contract and Request a Refund?

The Purchase Contract specifies how to terminate the agreement. If your reason for termination is listed, send the seller written notice before the applicable deadline. Each type of termination has its own deadline, making it essential to keep track of these dates.

Having an experienced attorney from GLO can streamline this process. With extensive experience in handling Purchase Contracts, GLO can:

• Determine if your termination reason is valid

• Ensure deadlines for written notice are met

• Provide and deliver proper notice to the seller

What If the Seller Refuses to Return My Earnest Money?

Sellers may still refuse to return your Earnest Money, even with proper termination. If this happens, the Purchase Contract provides steps to resolve the dispute:

1. Negotiation: Both parties attempt to reach an agreement. If successful, an Earnest Money Release is signed, and funds are distributed accordingly.

2. Mediation: If negotiation fails, mediation is the next step. A neutral third party facilitates a resolution. Mediation is typically less costly and time-consuming than litigation.

3. Earnest Money Holder’s Options:

   • Wait for litigation.

   • Interplead funds with the court.

   • Release funds to the buyer if no legal action (summons and complaint) is initiated within 120 days.

What is Mediation?

Mediation is an informal process where a neutral third party helps both sides resolve their dispute. It is a less costly and time-intensive alternative to litigation. Mediation is often included in real estate contracts to avoid the expense of formal legal proceedings.

When Might I Forfeit My Earnest Money?

There are instances when the seller may keep your Earnest Money:

• If you terminate for reasons not listed in the contract.

• If you miss the timelines for termination.

• If you decide not to proceed with the purchase due to a change of heart.

How Can GLO Help?

GLO provides comprehensive legal support to buyers and sellers, including:

• Reviewing contract terms to ensure clarity and compliance.

• Preparing real estate contracts and assisting with negotiations.

• Advising on contract terminations to protect Earnest Money deposits.

• Helping you navigate disputes, mediation, or arbitration.

Avoid costly missteps and ensure your rights are protected. Contact GLO today to schedule a consultation. Fill out an Intake Form to get started.

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