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Due to insufficient funds Earnest Money Check returned to title company. Is this illegal?

The Earnest Money check written to the title company was returned unpaid. The title company notified the buyer's agent and a cashiers check was turned in. While this is going on the buyer requested an Option Period extension, the Seller agreed. The Listing Agent and the Seller were not aware, and neither was the title company until they received notice from the buyer's bank. Perhaps the buyer did not do this intentionally, but is this illegal? Should the contract be terminated and the EM retained by the Seller?
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January 03 - Houston
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Answers (5)

Thanks for posting your question on Zillow.com.

It seems like everything got straightened out.  We have to keep in mind the main goal of everyone is to transfer the property from the seller to the buyer.  Why terminate over a situation that appears to be worked out?  Onward & upward.

Of course I am a Realtor, not an attorney.  Always good to speak to one if you are concerned.

Good luck.
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January 04
You need the advice of an attorney. 
In my lay opinion I do not think earnest money is required to have a contract.
The buyer might be in breach of the contract and you would likely need to give them a chance to remedy the breech, but they have already done this.
Title company should have advised you.
I don't think you can have it both ways though.....terminate and keep the now good earnest money.

I think in the end do you want the contract or not?   If you do move forward.  If you want out, then don't extend and don't offer repairs.
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January 04
Profile picture for Pasadenan
It seems to me that it's the buyer's own folly for not balancing their checkbook.  The buyer is the one that got stuck with the bounced check fees, and they still had to get a cashiers' check issued.  Perhaps the buyer's agent contributed to the folly by telling the buyer that the check wouldn't be cashed but just held as a placeholder?  In any case, if the earnest monies has now been paid by a cashier's check, what is the "big deal"?  It is not a "breach of contract", is was a simple accounting error.

Personally, I would have asked for a cashier's check for the earnest monies in the first place and not have accepted a personal check.  But that is a moot point now.
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January 04
We could say, "Yes," but it wouldn't matter.Let the title company decide.
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January 03
Bouncing a check isn't necessarily illegal but it sure looks bad. I'm not sure if you can back out if the transaction at this point. Maybe you can but anytime there is a question to the ones legal rights there is a potential court case looming. If you try to back out and the buyer wants to move forward you can be taken to court and it will be up to the judge if you are compelled to sell your property. I will tell you If you try to retain the earnest money and back out you are asking for more problems depending on terms if the contract you may not be entitled to it. Don't let greed get the best of you when you really just want to sell your home. If you are skeptical about the propespect of this buyer being able to close in the property I would not grant any more extensions and I would continue to show the property and accept back up offers. The best thing to do when you decide you don't want to do business with someone is to make it easy for them to walk away.
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January 03
 
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