When Real Estate Deposits Get Stuck After A Failed Transaction

The home-buying adventure is done. Buyer seals the deal with seller. Broker finalizes the paperwork. All parties sign on the dotted line and deposit monies goes into a broker trust fund.

Though this may be the most thrilling time for a home-buyer, it could still be fraught with risk. In a typical home purchase agreement, numerous conditions must be met by both the buyer and seller in order for the sale to fully actualize. Processes for financing, rezoning approval, or a home inspection could still be pending - all after your deposit funds are no longer in your bank account.

Refunds And Conditional Clauses

According to most purchase and sale agreements, a home buyer's deposit can be refunded if either the buyer or seller does not meet certain conditions listed in the agreement. For example, if the home inspection doesn't pass an acceptable threshold, the deposit may be fully refunded.

In some cases, though, litigation throws a wrench into the works. When a condition is unfulfilled and the dispute goes go to court, instead of automatically following the agreement and reimbursing the deposit, a judge may impose conditions on the responsible party to fulfill their obligation. This, in turn, may give rise to further dispute over the return of the deposit.

Trust Fund Complications

The situation can become all the more complicated by the way deposits are kept during this period. Real estate brokers are legally obligated to house deposits in trusts funds. Any release of the monies is subject to various legalities.

Typically, transaction deposits can't be released without the consent of both parties or without a court order. An agreement to release the funds must be made by both parties. But when buyer and seller are already disputing their obligations in court, deposit funds could hang in limbo.

In some cases, the moneys may, by agreement, be held in trust paid to the court until the matter is resolved. Meanwhile, legal advice may be needed to navigate a failed transaction and pursue the full reimbursement of a deposit.

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