Earnest Money and Seller Disclosure: Contract Must Be Signed To Be Valid

Added August 20, 2009 by Ilyce R. Glink

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Summary: If you put down earnest money or a down payment on a home and you have a seller disclosure issue, you better make sure you have a way to get out of the contract. If the seller disclosure form failed to disclose mold in a home, and you signed a contract to buy the home, you should have the right to also inspect the home to make sure you want to move forward in the deal. If as a buyer, you don't understand issues like contracts, earnest money, seller disclosure and home inspections, you might want to reconsider buying a house or hiring a real estate attorney and a home inspector before signing a contract to buy a home.

Q: The first time my elderly 82-year old mother went to see a house for sale, she gave a check for $500 of earnest money to the listing agent.

When I was questioning her about the home she said the basement had mold up the walls in the basement from a flood. I was very concerned. She did not understand what black mold was and she has serious allergies and is being treated for them.

Because of this conversation, my mother told the seller she was backing out of the deal and purchased another home. The seller came back and told her she had to go through with the purchase.

This is causing mother great grief. Can a seller really force you to buy their home? I thought earnest money was to be forfeited if you backed out of a deal?

Watch our video on Seller Disclosure.

A: First, did your mother sign a contract? Real estate deals must be in writing to be enforceable. Usually, when a real estate broker takes an earnest money check, the buyer has signed a purchase and sale agreement (or purchase contract).

If she signed a contract on the spot, without having an attorney approval rider or an inspection or financing contingency or if she did have the right to consult with an attorney or perform a home inspection but did nothing about it, then the seller may have an action for damages against your mother and her loss may not be limited to the earnest money deposit unless the contract specifies that.

For information on hiring a home inspector, watch our Hiring a Home Inspector Video.

If she had an inspection contingency and had the house inspected within the right time period and it fails the inspection because of the mold issue, she might be able to not only back out of the contract, but get her $500 back. In addition, it seems that your mother knew of the mold issue whether or not the seller disclosed the issue to your mother in a seller disclosure form. In some states, the seller might be required to disclose the issue to the buyer and if the seller failed to disclose the issue, the buyer might have the right to terminate the contract.

The real question is does your mother understand how to purchase a house? Does she understand enough about the responsibilities of homeownership and what she would be responsible for? If she didn’t understand that mold in a basement is cause for concern, what else doesn’t she understand?

If your mother did not sign a contract to buy the house, the seller shouldn't have a right against her. If she signed a contract, the contract will set forth whether the earnest money or down payment if forfeited in case the buyer fails to close on the purchase of the home. You should consult immediately with a local real estate attorney to discuss the situation.

Read more about what kind of situations may arise with seller disclosure

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