When you’re buying a home, putting down earnest money shows the seller you’re serious about the deal. But what happens when things go sideways and the deal falls through? Can you get your earnest money back, or are you out of luck? 

The answer depends on the terms of the agreement and whether the contractual obligations have been met. Not surprisingly, buyers and sellers can sometimes be at odds about the way things went down. If you’re caught in an escrow dispute in Florida, here’s what to know about recovering your deposit.

Who Manages the Earnest Money?

Earnest money is a deposit of typically 1% to 3% of the purchase price that a buyer puts into an escrow account soon after a real estate contract is signed. It acts as a “good faith” gesture to show the seller that the buyer is committed to the purchase.

The escrow account is managed by a neutral third party, a.k.a. the title agent. This is usually a title company, real estate broker or attorney, and they hold the funds until closing (or the deal is cancelled). 

How Earnest Money is Managed During Escrow Disputes

Escrow disputes usually arise when the buyer wants the earnest money refunded, but the seller believes they’re entitled to keep it. Common causes for disputes include:

  • The buyer backing out without a valid reason after the inspection period has passed
  • One party missing a deadline
  • The buyer or seller believing the other party breached the contract
  • The home inspection or financing contingency causing issues or confusion
  • The seller terminating the deal unlawfully

If the buyer cancels the deal for a reason covered by a contingency (i.e., inspection, financing, etc.) and does so within the timeframe specified in the contract, they’re typically entitled to a full refund. But if the buyer walks away after those deadlines or for a reason not protected by the contract, the seller may be allowed to keep the deposit as liquidated damages. 

The escrow agent cannot release the funds until all obligations of the purchase agreement have been met or, in the case of a dispute, the issue has been lawfully resolved. This may include a written agreement between buyer and seller, a court order resolving the dispute, or a mediation or arbitration outcome (if required by the contract).

Resolving escrow disputes comes down to evaluating the facts of the purchase agreement. A real estate attorney is best qualified to guide buyers and sellers through an escrow dispute while complying with state laws governing real estate transactions.

How to Protect Your Earnest Money

Because large sums of money can be tied up in escrow, it’s important to know the best ways to protect it. Here are some things to keep in mind:

  • Understand your contract – Especially the contingencies and cancellation deadlines.
  • Act within time limits – Don’t wait until the last minute to cancel based on inspections or financing.
  • Put everything in writing – Notifications should be formal and well-documented.
  • Work with a real estate attorney – Especially if you’re unsure about your rights or if a dispute arises.
Contact our Team at Sirulnik Law and ADS Title Services

Escrow disputes can be frustrating and stressful, but they don’t have to end in court. If you believe you’re entitled to your earnest money or if you’re a seller disputing a refund, make sure you understand your contract and your legal rights.

At the Law Offices of Alex D. Sirulnik, P.A. and ADS Title Services, Inc., we help buyers and sellers navigate escrow disputes and protect their interests throughout the real estate process. If you have questions, reach out to our team today.