What happens if the buyer does not deposit earnest money? They are in breach of contract, and this is a serious problem. 

  • If the buyer does not pay the deposit the seller may cancel the deal 
  • The deposit is required to protect the seller 

If you fail to deliver the (Earnest Money Deposit) EMD on time or not at all then you may be able to fix the situation, but it will damage your relationship with the seller. 

What Happens if the Buyer Does Not Pay the Deposit? 

If the buyer does not pay the deposit, then they are in breach of the agreement. According to Finney Law Firm the seller may: 

  • Force specific performance 
  • Renegotiate terms 
  • Walk away 

Specific performance occurs when a court orders the buyer to fulfill the terms of the contract. Once the buyer breeches the contract the seller may renegotiate, bring a lawsuit, or walk away. 

Buyer Does Not Deposit Earnest Money Because the Check Bounces 

What happens if the earnest money check bounces? Pocket Sense tells us that if the check bounces, then the buyer’s agent contacts the attorneys. It is a serious problem and could kill the deal. 

If this happens to you, you may be able to contact the bank and see if you can use over draught privileges. If your bank will not allow this, then you should call your real estate agent and explain the situation to the seller. 

The solution may be as simple as moving some money from on account to another. It may be that you moved money earlier, and it just did not post in time. In these cases, the seller will probably see it as a mistake and continue with the contract. 

It is a breach of contract, though. The seller can terminate the agreement. To avoid this, it is always a good idea to use a cashier’s check to deposit the funds into the escrow account. That way, there is never any doubt whether you have the funds available. 

If EMD is Late 

What happens if earnest money is late? The lawyers will add a clause to your contract regarding EMD. This section contains the amount and the due date. If you deposit earnest money late you may be in breach of contract. While EMD is not legally required it is common in most areas, and the seller’s attorney will write it into the contract if both parties agree. They will also put a deadline for you to deposit the money. This is usually three days after the contract is executed (both parties sign).  

Once you are in breach, then the seller may: 

  • Cancel the contract 
  • Replace yours with another 
  • Renegotiate the terms 

Even if the seller agrees to go forward with the deal, it makes for bad relations. You certainly do not want to get off on the wrong foot with the seller during the home buying process. 

Realtor did not Collect Earnest Money 

If the real estate agent does not collect the EMD you are in breach of contract. As the home buyer it is ultimately your responsibility to make sure you deposit the funds. 

If you did not give the check to your agent than call them immediately to see what you can do to fix the situation. The seller may be patient if you simply did not stay on top of what you need to do. However, they do have the right to terminate the contract. 

If you gave the check to your agent and they simply failed to deposit it, then you should contact the broker. This is a serious problem. They may have stolen the money, but more likely they are simply incompetent. You should request someone else to handle you transaction. 

In either of these cases, whether it was your fault or not the buyer may cancel the contract and move on to another buyer. Also, in both circumstances the buyer’s agent is incompetent and should be fired. Th real estate agent should never do anything to jeopardize a deal. Not handling money correctly is a huge problem, and you never tolerate a professional who does not handle deposits correctly. 

Why Is the Buyer Required to Deposit Earnest Money? 

The law does not require EMD, but most contracts contain a clause to provide for it. Once both parties agree to the clause then it does become binding, and the seller can terminate the agreement if the buyer does not provide EMD.  

Sellers want this deposit because it protects them against a fickle buyer. While the contract allows for valid reasons for the buyer to terminate if there is a problem with the house or they cannot get a mortgage, it does give the seller some assurance that the buyer will not walk away just because they get cold feet. 

Is a Contract Valid Without a Deposit? 

A contract can be valid without a deposit. Again, there is no legal requirement for EMD. While it is not common, there are many contracts that do not contain a provision for EMD. It simply something that the buyer and seller negotiate and agree upon. 

Rights When Paying a Deposit 

What are my rights when paying a deposit? You do have rights regarding your money when you buy a house, and you should be careful when you deposit large sums of money. 

First, when you give the check to your real estate agent make sure they give you a dated receipt that shows the amount that you deposited. This is important because things to happen. If the agent does not deposit the check properly then you have a paper trail showing that you really did provide the funds on time. 

Second, if the deal falls through because a clause was triggered then the buyer has the right to recover the funds. On the other hand, if the buyer walks away without grounds, then the seller may recover the money. If there is a dispute, then the money stays in escrow until the matter is resolved. In this case, neither party may access the funds, and this may take quite a while. These disputes often end up in court where a judge decides how to distribute the money. 

Third, if the deal closes the buyer has the right to decide how to spend the money. Usually, they put the money towards the closing costs or the down payment. Sometimes, they may even elect to get a cash back at closing if they have sufficient funds to close. In any case, the buyer has the right to see how the money is distributed, and it must show up in the closing documents

Final Thoughts About What Happens if the Buyer Does Not Deposit Earnest Money 

What happens if the buyer does not deposit earnest money is that they are in breach of contract. No matter how this happens. Whether a check bounces or a real estate agent forgets to go to the bank, it may kill the deal. Therefore, it is always best to deposit the money on time, and there are now several forms of payment where you can ensure this happens easily.

If it is an oversight or a timing problem (moving funds from one account to another) then the seller may be patient. On the other hand, it does show that you may not be dependable to close the deal. This is never a good way to start a transaction. To avoid this, always pay with a cashier’s check and make sure you get a dated receipt from you again when you give them the deposit.