Get Earnest Money Back After Short Sale Falls Through

Added August 20, 2009 by Ilyce R. Glink

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Summary: Get earnest money or down payment back after a short sale falls through. If you have the right to the return of your earnest money or down payment under a contract, the listing broker should have no problem sending your earnest money or down payment back. But you need to make sure you have complied with the terms of your contract to get your earnest money back. It may not be enough to just get the word of the listing broker.

Q: I was a buyer in a short sale transaction that did not get bank approval in time, so the contract expired. I decided to not pursue this house and both the Realtor, broker and I agreed that I would get my earnest money back.

It has been well over a month and the broker is dragging their feet on sending the check back to me. They keep trying to get me to buy that same property and I am no longer interested. What are the next steps I can take to get my earnest money back? I am tired of asking for it and being told I will be getting it soon and it never appears.

A: You may have to hire an attorney to make it clear to the seller's agent that you mean business and that you need to get your earnest money or down payment back after your short sale fell through.

You say that everybody was in agreement that you were to get the earnest money back, but did you have a legal right to get the earnest money or down payment back? In some parts of the country, buyers are not represented by real estate attorneys and they forget that they must follow the terms of the purchase and sale agreement (or contract).

If the purchase and sale agreement states that you get your earnest money back if you are unable to get financing and deliver written notice to the seller of your failure to get financing, and you complied with the terms of the contract, you should get your earnest money back.

However, if you failed to abide by the terms of the contract or purchase and sale agreement, you might be in trouble. Just because you have a verbal understanding that you should get your earnest money back, the seller could still come back and say that you failed to abide by the terms of the contract and shouldn’t get the earnest money or down payment back. A real estate attorney can give you more information on this issue.

In the meantime, if you have a legal right to get your money back because you either complied with the terms of the contract or have written proof that the listing broker and the seller agreed to give you the money back, you should be in daily contact with the managing broker of the listing agent's office. If you have to escalate from there, speak to the owner of the company, and then the local board of Realtors. You can also file a complaint with the state agency that regulates and licenses real estate agents and brokers in your state. If the seller couldn't sell you the home because the seller could not get his lenders to agree to the short sale, the seller may be in violation of the terms of the purchase and sale agreement and you should be able to force the seller to give you your earnest money or down payment money back.

Learn more about earnest money and buyer-broker agreements

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