Texas Terminating Contract within 3 Days-Earnest Deposit Needed?

Question

Hello fellow REIs,

I have a quick question on Earnest money check deposit on a property in Texas. Per TREC contract, Earnest check has to be deposited within 3 (business) days. My question is - if the contract is terminated within the 3 days period, is the Earnest deposit still needed? Option period is longer than 3 days.

I understand the option money is non refundable and is lost but want to understand Earnest requirements.

Thanks for your help!!

priyanka

Priyanka K. · Answer

@Greg H. what??? really? I think it is a genuine scenario, if the intention was to deposit a check that would bounce, this question will not even arise! My question was - do I even need to deposit the check?

@Chris Soignier thanks for your response! Exactly the answer I was hoping for! :)

Chris Soignier · Answer

I'd never put up EDM after contract termination, or advise my clients to do so.

Greg H. · Answer

If the contract is terminated, then there is no reason to deposit the EM per say.  However, there is nothing that would be wrong in doing so

I would hope this would not be an attempt to control the property for a couple of days by presenting a check that would bounce?  What would you do if it is taken to the title company immediately ?

Irene Nash · Answer

@Priyanka K. Glad that helped. For what it's worth, the same scenario came up with a friend in Idaho and that was also the case regarding the EM, no need to deposit because contract was terminated before the deadline. (Actually her buyer's agent told her that yes, she needed to deposit it anyway, but the managing broker - and the contract language if the agent had read it - said 'No'.)

I don't do Texas RE but from a contractual standpoint, if the buyer is still obligated to fulfill obligations of the contract that have deadlines after the contract termination date (like the EM deposit), technically it seems they would be obligated to fulfill all their other deadlines.  For example, if they were required per the contract to make application for financing within 7 days, then why would they not be obligated to do that as well?  Unless there is something really specific to TX state law regarding this.

Priyanka K. · Answer

@Sam Craven

Thanks much! That is the answer I was hoping for!! :)

Yes, option money has already been received by seller's agent and I know that is non-refundable.

Appreciate your response!

thanks!

priyanka

Sam Craven · Answer

the answer is no, because you had an option period.

You still owe the cost for the option period though.  Whatever it says there on page 8 should be paid directly to the seller.

Priyanka K. · Answer

@Sam Craven Yes, there is an option period which is longer than 3 business days (period for Earnest deposit).

Sorry, I am not clear on the wordings on the second scenario descried by you above - it says "if NO option period was given..." but I have an option period. It also says "then you are within your legal right to receive the earnest money that had not been deposited yet.". If the Earnest money has not been deposited, how can I receive it?

My question is - do we need to deposit Earnest if contract is terminated within 3 days? Option period is longer than 3 days.

Sorry for the confusion and thanks for your help!! I appreciate it!

priyanka

Sam Craven · Answer

see my second scenario Priyanka.

You have to understand the difference between an option period and earnest money.

So did the contract have an option period?

Priyanka K. · Answer

@Irene Nash thank you so very much! Yes, that is my exact question and understanding for Texas as well, just want to confirm with a few folks here. Hopefully someone will confirm that for Texas as well.

I appreciate your response!

priyanka

Priyanka K. · Answer

@Sam Craven thanks so much for the detailed response on all those scenarios.

My scenario is - Earnest money IS part of the contract. If contract is terminated withing 3 business days (within the period given for Earnest money deposit), is Earnest deposit still required?

thanks much!

priyanka