It is not unusual for contracts to purchase real estate to fall apart for any number of reasons. The buyer may terminate under an option contained in the contract, financing may not be available under agreed upon terms, the buyer’s circumstances may change or the seller may refuse to cure some title defect. When contracts do fall apart, disposition of the Earnest Money may be disputed. Even in contracts which contain an unrestricted right for the purchaser to terminate the contract, title companies or escrow agents may require the parties to execute a Release of Earnest Money directing to whom the Earnest Money should be released.
Why? Contracts to purchase real estate are like any other contract and whether the parties complied with the terms of the contract can be disputed. In Texas, disputes involving real property are within the jurisdiction of the District Courts in the county where the property is located – not the title company/escrow agent. Even when there is a termination option, there have been instances where the seller disputed the timely receipt of the option fee. Even when the option fee receipt on the contract is signed by the seller, there have been instances when the option fee check was returned unpaid. If such a dispute arises, the title company/escrow agent does not want to be involved in the dispute and the safe way to avoid involvement is to require a Release of Earnest Money signed by the parties.
The standard Texas Real Estate Commission contract does contain a provision allowing for a party to demand release of earnest money from the title company/escrow agent. The standard TREC contract further provides for the title company/escrow agent to notify the other party of the demand. If, within the time period established by the contract, the other party does not object, earnest money can be released to the demanding party.