Can a Seller Keep the Earnest Money If a Buyer Breaches the Contract?

This is a common question we receive from sellers when a buyer puts down earnest money and then simply walks away from a transaction. First of all, a purchase agreement is a contract, so a party cannot just choose not to perform their contractual obligations without legally terminating the contract. If a buyer does breach a contract, the seller can sue for the damages that he/she suffers. However, most real estate contracts do not have liquidated damages clauses, meaning that the seller cannot just keep the earnest money to compensate them for their damages.

Under Illinois law, earnest money can be distributed either by agreement of the parties, or by an order from a court of competent jurisdiction. Therefore, if the parties cannot come to an agreement, and neither party is willing to file a lawsuit to claim the earnest money, then the money will remain with the person or company holding the money in escrow, until it will eventually be turned over to the state as unclaimed property. The person holding the earnest money is not legally allowed to disburse the money based on who he or she thinks is entitled to it.

Bear in mind, that if the buyer is entitled to the earnest money, and the seller refuses to return it to the buyer simply based on spite or any other reason, and the buyer has to file a lawsuit to recover the money, courts have also been ordering the seller to pay for the court costs and attorney’s fees of the buyer for forcing them to have to use the courts.

Categories: Real Estate

Contact Us For a Free Consultation

  • This field is for validation purposes and should be left unchanged.

Blog

This is one of the most common questions asked of criminal attorneys. There are pros and cons to each side. If you choose not to submit to either the field sobriety or breathalyzer test, then the police must make a decision on whether to arrest you w… Read More
This is a common question we receive from sellers when a buyer puts down earnest money and then simply walks away from a transaction. First of all, a purchase agreement is a contract, so a party cannot just choose not to perform their contractual obl… Read More