If Buyer Cancels Contract Because of Seller’s Default, the Buyer Is Entitled to the Return of Non-Refundable Earnest Money
The seller and buyer agreed in the Short Sale Addendum that the $5,000 earnest money would be non-refundable for ninety days. After forty-five days, the lender approved the short sale, and the seller and buyer opened escrow. During the ten-day inspection period, the seller refused to pay to have the utilities on, even after the buyer delivered to the seller a three-day Cure Period Notice. The buyer cancelled the Contract. The seller is demanding the $5,000 earnest money because the buyer cancelled within ninety days. Is the seller entitled to the $5,000 earnest money?
No. First, the non-refundable language should have added “unless the seller defaults,” Second, even without this additional language, the only reasonable interpretation of the non-refundable language is that the $5,000 earnest money is no longer non-refundable after escrow is opened. Therefore, if the seller breaches the Contract, or if the buyer gives notice of cancellation as provided in the Contract, e.g., BINSR disapproval, the buyer is entitled to the $5,000 earnest money even though the ninety days has not passed.
Arizona REALTOR® Magazine – October 2011