In the best of best worlds, Real Estate transactions run smoothly, no hitches, no delays. Unfortunately, that is not always the case. At times closings get delayed or, worse case scenario, terminated, particularly residential, with either the Seller or the Buyer initiating the termination.

More often than not, its the Buyer initiating. The reasons vary from unfavorable home inspection results, deal-breakers found in the covenants, Title didn't clear, property didn't appraise at or above sale price, Buyer's expected terms of financing fell through, Buyer's contingency of their own home sale fell through. There's also the unexpected death or severe illness/accident with one of the parties or a family member, job transfer/relocation fell through, etc.

I also know of a contract being terminated within a week of acceptance when the buyer (who contracted site unseen) discovered information provided by the Listing Agent was false, i.e. basement wasn't a walk-out, the square footage of living space included the 2 car garage, there was only one full bath, not 3.

The good news is that when a Real Estate contract is terminated in good faith and both parties have signed off on the earnest money release form, the Buyer can expect to receive the earnest deposit in very short order.

But what if both parties didn't sign off? What does the holder of the earnest deposit (usually a Title Company) do?

There is not a set in stone protocol across the boards for all Title/Escrow Companies with regard to the release of earnest deposits when either party has failed to sign the release. They have their own policies. Depending on whether or not recourse actions have been taken or are in progress, some hold it indefinitely until both parties agree (I came across more than one that still had funds from 7-10 years prior), some default automatically to the Buyer after several months of holding it, some to the Seller.

Whatever the case may be, you owe it to yourself to perform your due diligence and read the fine print on everything related to the property sales contract and for Sellers, that includes the Listing Agreement. Note: Some Listing Agreements have a choice of clauses regarding the earnest deposit on a terminated contract if awarded to the Seller. One is that the Realtor would get half of it, another the Seller gets the entire sum, and yet another is a fill in the blank on the amount/percent.

In speaking with a lot of Realtors I found that in many cases the Buyer forfeits the earnest deposit even if they terminated in good faith. Apparently some they don't consider it worth their time to pursue recourse. And some who do consider it worthwhile, will go to their Attorney, usually at considerable cost, and have them assist in getting it returned to them.

My advice, in addition to performing your due diligence right out the gate, is to not waive your right to recourse and if something goes awry on the contract, seek mediation as your first option to resolution. Its relatively inexpensive and has a very good record of success (about 85% of cases resolve with mediation). Note: You are also welcome to involve your attorney in the Mediation process if you so choose.