What if a seller will not sign to release the Earnest Money Deposit after a buyer has terminated during the Due Diligence Period?

QUESTION: My buyer went under contract to buy a home using the Offer to Purchase and Contract (Form 2-T). After paying the Due Diligence Fee and conducting inspections, the buyer decided to terminate during the Due Diligence Period since the seller was not willing to perform any repairs. The seller became very irritated, and now, even though I have reached out to the listing agent many times, the seller will not sign the termination in order to release the Earnest Money Deposit.

The escrow agent is the closing attorney, and even though my buyer hired them for this transaction, they will not release the Earnest Money Deposit to my client without the seller’s signature. Is there anything I can do? Is a signature required in order to release the Earnest Money Deposit in every case like this?

ANSWER: Each escrow agent must use their best judgment and follow the law when it is not clear if there is a dispute or not regarding entrusted funds. If the lawyer in your case is requiring a signature, then your buyer has a couple ways to proceed.

Form 2-T was recently amended last year to address Earnest Money Deposit disbursement:

(h) “Earnest Money Deposit”: The Initial Earnest Money Deposit, the Additional Earnest Money Deposit and any other earnest monies paid or required to be paid in connection with this transaction, collectively the “Earnest Money Deposit,” shall be deposited promptly and held in escrow by Escrow Agent. The Earnest Money Deposit will be credited to Buyer at Closing or disbursed as required by this Contract. In the event of a dispute between Seller and Buyer over the disposition of the Earnest Money Deposit held in escrow, Escrow Agent may remit the Earnest Money Deposit to the clerk of court or otherwise disburse it according to North Carolina Law if the Buyer and Seller cannot resolve the dispute by consent. (Highlighting added.)

The Earnest Money Deposit must be returned to the buyer if the buyer terminates during the Due Diligence Period under Form 2-T. See paragraph 4(g). So, the yellow-highlighted sentence makes clear that unless there is a dispute from the seller, then the Earnest Money should be paid to the buyer in this situation. The blue-highlighted sentence gives the escrow agent two options if there is a dispute. Absent a dispute, the Earnest Money Deposit should be disbursed according to the contract.

In your case, we do not know what input the lawyer has received from the seller or listing agent, and we do not know if there is a dispute regarding the Earnest Money Deposit or not. Even though it may seem clear that the Earnest Money should be paid to your buyer under Form 2-T, the seller may have a different opinion (even if that opinion is not well-founded).

We do know that the seller is not happy with the termination, and if the closing attorney in your case also knows this, then they may be insisting on a signature just to make sure they are covered. A closing attorney providing escrow agent services owes a duty to the buyer and the seller when it comes to the Earnest Money Deposit, and the closing attorney must be impartial. See 98 FEO 11 and RPC 66. This is why it is common for attorneys to be cautious if it is at all possible that escrowed funds are in dispute. It is also why some closing attorneys always require a signed release from one party to the contract before releasing the Earnest Money Deposit to the other side, because it is very likely that their knowledge about the transaction is limited.

To resolve your situation, the buyer has three different options:

1.     Communicate a Demand to the Seller. Email the listing agent and ask them to confirm, as soon as possible by a time and date certain, that the seller is claiming the Earnest Money Deposit. You can also say that unless the listing agent confirms that the seller is claiming the Earnest Money Deposit, then your buyer will proceed as if there is no dispute. If the listing agent confirms that the seller is not claiming the Earnest Money Deposit, or if there is no response before the deadline given to the listing agent, then the lawyer may decide to release the funds (but they are not required to). If the lawyer continues to insist that the seller sign to release the Earnest Money Deposit, the buyer may proceed with options two or three below.

2.     File a Small Claims Action. If the Earnest Money Deposit is $10,000.00 or less, then the buyer may file a small claims complaint. These complaints are simple and inexpensive, and they can often be heard quickly (10-14 days). If the magistrate enters judgment in the buyer’s favor and no appeal is filed, then that judgment can be given to the closing attorney to show that disbursement is proper.

3.     Wait 90 Days Until the Earnest Money is Deposited with the Clerk of Court. N.C.G.S. § 93A-12 gives closing attorneys the same ability to deposit a disputed Earnest Money Deposit with the clerk of court once it has been held for 90 days in trust. Once it is deposited with the clerk, the buyer can file to recover the Earnest Money Deposit from the clerk. Note that the paperwork, service requirements, procedure, and cost under this option are very similar to those for a small claims case. In most instances, a small claims case will be a much faster way to resolve the issue. However, if the Earnest Money Deposit is more than $10,000.00, then this option is much easier to navigate than pursuing a regular lawsuit in district court.

Release Date: 1/29/2026

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