Question: Three days prior to closing on a home in Buckeye,
the seller disclosed that the neighboring homeowner had filed
a lawsuit against the seller in regard to a property line dispute.
After learning of this lawsuit, I wrote a letter to the escrow
company requesting cancellation of the contract and the return
of my $7,500 earnest money. The escrow company will not release
my $7,500 earnest money without the seller’s permission, and the
seller refuses to give permission because “things will work out”
with the property line dispute. How can I get my $7,500 earnest
money back? Can I buy another home while I am fighting to get
my $7,500 earnest money back?
Answer: First, under the standard residential purchase
contract, the seller and the buyer generally have an obligation
to mediate any disputes between them, including disputes regarding
earnest money. If mediation fails, you should be successful in
any lawsuit for the return of the $7,500 earnest money, inasmuch
as the seller failed to disclose this property line dispute to
you until the lawsuit was filed. Second, you should be able to
purchase another home now because the seller cannot require you
to purchase the home. Furthermore, the seller is refusing to release
the $7,500 earnest money to you, which means that even if the
seller would sue you, the seller’s claim would be limited to the
$7,500 earnest money. Under the standard residential purchase
contract, the seller can either demand the earnest money, or demand
damages, but not both.
