FACTS: The buyer and seller entered into an Arizona REALTORS® Residential Resale Real Estate Purchase Contract contingent upon financing.  Pursuant to the Contract, the buyer deposited $25,000 as earnest money with the Escrow Company.  The day that escrow was scheduled to close, the buyer provided a letter from his lender providing that the buyer was unable to obtain financing and requested a return of the earnest money.  The seller advised the Escrow Company that he was contesting the distribution of the earnest money to the buyer, claiming that the buyer had not acted in good faith with respect to his loan application.  Over the seller’s objection, the Escrow Company returned the earnest money to the buyer.

ISSUE: Does the seller have a claim against the Escrow Company for the wrongful disbursement of the earnest money deposit?

ANSWER: Probably not.

DISCUSSION:

Pursuant to Section 3f of the Contract, the buyer and seller grant the Escrow Company the right to release the earnest money, “in its sole and absolute discretion,” pursuant to the terms and conditions of the Contract.  The parties also agree to hold harmless and indemnify the Escrow Company for any claim or expense relating to the release of the earnest money.  Consequently, it is unlikely that the seller has a viable claim against the Escrow Company for the disbursement of the earnest money deposit.