ISSUE:

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?

ANSWER: 

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


About the Author

Michelle Lind

K. Michelle Lind, CEO of Arizona REALTORS®, is also an attorney, State Bar of Arizona board certified real estate specialist, and the author of Arizona Real Estate: A Professional’s Guide to Law and Practice.
Please note that this article is of a general nature and may not be updated or revised for accuracy as statutory or case law changes following the date of first publication. Further, this article reflects only the opinion of the author, is not intended as definitive legal advice and you should not act upon it without seeking independent legal counsel.