The short answer to your question is YES. However, you receive the return of your earnest money at closing in the form of a credit against the purchase price of the house you are purchasing. For example, if you make an Earnest Money Deposit of One Thousand Dollar ($1,000.00) you will receive a One Thousand Dollar ($1,000.00) credit off of the purchase price at closing. You will see this credit reflected on the Settlement Statement. You will also hear the Settlement Statement referred to as the “HUD.” If you do not see this credit reflected on the Settlement Statement, you need to point this out to your closing attorney or paralegal prior to closing.
Let me be clear here. If the closing takes place you WILL receive a credit for your Earnest Money Deposit at closing. If the transaction does NOT close, the answer to the question of whether you get your Earnest Money back turns from a YES into a MAYBE. The Offer to Purchase and Contract that you entered into with the seller will include language that sets forth when and if you get your Earnest Money back if the transaction does not close.
In 2011, North Carolina made revisions to the standard form Offer to Purchase and Contract to include what we call a “Due Diligence Provision”. This provision sets forth that you, as the buyer, have a certain amount of time to inspect the property before determining whether you want to go forward with the closing. This time is usually spent having inspections of the home completed; termite inspections, roof inspections, etc. The Offer to Purchase and Contract will include a date which is the day that your due diligence period ends. If you correctly terminate the contract before your due diligence period ends you will have a right to the return of your Earnest Money, no questions asked.
Should you fail to terminate the contract before the due diligence period ends, you will be at risk of forfeiting your Earnest Money Deposit to the seller. For example, if the contract states that your due diligence period ends on March 1st and you do not terminate the contract until March 2nd, you are not guaranteed a return of your Earnest Money. If you wait until after your due diligence period ends, the contract states that you forfeit the Earnest Money Deposit unless the seller materially breached the contract. If you simply decide, after the due diligence period, that you do not want to go through with the purchase you will forfeit your Earnest Money Deposit. If, on the other hand, it is determined that seller has breached the contract then it does not matter that you terminate the contract after the due diligence period runs. The contract will not penalize you for terminating the contract if seller has committed a material breach of the contract. However, the seller may try to fight you over the return of your Earnest Money and that is a story for a different blog.
So you must remember to (i) check the Settlement Statement to make sure you receive a credit against the purchase price if you decide to go through with the purchase of the home and (ii) to terminate the contract before the due diligence period runs to ensure that you receive a return of your Earnest Money if you decide you do not want to go through with the purchase of the home.
If you have any further questions regarding the return of your Earnest Money, or would like to schedule your closing, please do not hesitate to contact us here at Conrad Trosch & Kemmy. We deal with Earnest Money everyday and can help you with any questions that you may have.