George Clements ~ Greenville, SC Real Estate
Paragraph 14 of the Contract For Sale deals with default of the contract and looks something like this:
14. DEFAULT: If Purchaser or Seller fails to perform any covenant of this Contract, the other party may seek any available legal or equitable remedy, and may terminate this Contract. If termination is due to default by Purchaser, Seller shall be entitled to retain the earnest money deposit. If termination is due to default by Seller, Purchaser shall be entitled to a refund of the earnest money deposit, and Seller shall reimburse Purchaser for Purchaser’s actual costs incurred, as defined herein below. However, it is expressly understood and agreed that Escrow Agent shall not release any earnest money until both parties execute a written release of the other from this Contract and any rights, obligations and claims arising hereunder. Said release shall also provide Escrow Agent with conclusive instructions regarding the disbursement of the earnest money. If either party refuses to execute the release contemplated by this paragraph, Escrow Agent shall hold the earnest money in trust until said release is executed, or until the disposition of the matter by a court of competent jurisdiction. If litigation is required to resolve the matter, the prevailing party shall be entitled to an award of costs and expenses of the action, including reasonable attorney’s fees. Furthermore, the parties expressly agree to indemnify and hold Escrow Agent harmless from any claims or damages arising from Escrow Agent’s refusal to release the earnest money in a manner inconsistent with the provisions of this paragraph. For the purposes of this contract, “actual costs incurred” by the Purchaser shall include all documented costs, expenses or obligations incurred for or by Purchaser or broker in an effort to consummate this sale. Such costs include, but are not limited to: costs of loan application, credit report, appraisal, survey, inspections and reports, title examination and broker’s fee or commission for this sale.
This is a pretty long clause that covers what happens if the purchaser or seller back out of the contract for no reason listed in the contract. An example of a good reason listed in the contract would be if the contract is contingent on the purchaser obtaining financing and they are not able to.
The basic idea of this paragraph is that if the purchaser backs out then the seller gets to keep the earnest money and if the seller backs out then the purchaser gets their earnest money back.
The "Escrow Agent" listed here is whichever real estate company is holding the earnest money, either the purchaser's company or the seller's company. The real estate company cannot release the earnest money unless they have it in writing that both the seller and the purchaser are getting out of the contract.
If the seller pulls out of the contract then they are responsible for any costs that the purchaser has had to close the transaction. This would be costs like attorney fees, inspections, loan costs, etc. Basically anything they had to pay for so far to get the transaction closed.