Question: I represent a seller that recently had their home under contract with a buyer. Home inspection issues have now caused the contract to fall apart. The buyer is requesting the seller sign a mutual release form that would confirm the termination of the purchase contract and direct the return of the earnest money to the buyer. However, the seller believes that the buyer has breached the terms of the purchase contract and that he, the seller, should retain the earnest money.  The seller also wants his property to go active again on the MLS.  May I go ahead and start offering the seller’s property for sale even though there is no executed mutual release signed by the buyer and seller and they are fighting over the earnest money?

Answer: In this scenario, you will need some kind of confirmation that the purchase contract is no longer enforceable by the buyer against your seller client.  You may feel confident, based on the correspondence between the parties, or their respective attorneys, that the contract is truly null and void.  However, if you are not quite sure, you may wish to seek assurances from the seller’s attorney that you may proceed with relisting the property.

Unfortunately, it may be common for the parties to a purchase contract to ‘dig in their heels’ and disagree about returning the earnest money when it appears the transaction will not close. This may lead to the refusal of the buyer and seller to sign anything, including a mutual release of contract.  If your seller believes that he has the ‘right’ to the earnest money, he should be directed to his own attorney to discuss the same.

Keep in mind that if your brokerage, or the buyer’s brokerage, is acting as the escrow agent for the earnest money, under the License Act and Rules, the distribution of disputed earnest money requires the joint written direction of the parties or a court order. The terms of the purchase contract may provide a procedure by which a brokerage holding escrow moneys can propose a distribution of the funds being held in escrow when a transaction does not close. For additional information concerning escrow accounts and earnest money disputes, please see our Escrow Accounts page.