Forfeited earnest money

It is commonly known that earnest money is a deposit made by a buyer towards the purchase of real estate to demonstrate that the buyer is serious in wanting to complete the purchase.

If the buyer retracts the offer, the buyer forfeits the earnest money.

If the offer is rejected, the earnest money is usually returned, since no binding contract was entered into. Likewise, if the contract is made conditional on the buyer receiving acceptable financing or some other condition , the failure of the condition to be satisfied generally does not cause the earnest money to be forfeited.

This case involved a real estate purchase contract that contained ambiguous language. The issues were whether the language created a condition and, if so, whether the buyer forfeited the earnest money. The defendants attempted to sell its business, a Supper Club, at auction.

The auction was open only to cash buyers. The auction was held, but the defendant rejected the high bid as being too low. So, the defendant started talking to the plaintiff again about purchasing the property.

forfeiture of earnest money

The contract stated that the earnest money deposit would be forfeited as liquidated damages if the plaintiff failed to perform according to the terms of the contract. Unfortunately, the bank told the parties that the mortgage could not be assumed unless the defendant remained on the loan as a borrower.

‘Earnest money can be forfeited on non-performance if it was given by way of performance guarantee’ | Business Line

The parties tried to work out an acceptable arrangement, but ultimately the contract could not be completed and the defendant retained the earnest money. The plaintiffs sued to get it back. Ag Decision Maker Home Page. AgDM Whole Farm Legal and Taxes Recent Iowa Opinions, May