Does Buyer’s Due Diligence Fee get refunded upon Seller’s breach of contract?

QUESTION:  My buyer paid a $750 Due Diligence Fee to a seller. The parties agreed on a Settlement Date in October. However, the closing attorney discovered a title problem and has said that it will take three months to resolve the issue. The buyer does not want to wait that long to close. I know the buyer will receive his Earnest Money Deposit in this situation. However I am not sure if Seller has to refund Buyer’s Due Diligence Fee? What should I tell my client?

ANSWER:  Paragraph 8(g) of the Offer to Purchase and Contract (Standard Form 2-T) obligates Seller to “execute and deliver a GENERAL WARRANTY DEED for the Property in recordable form no later than Settlement.” Paragraph 8(n) of Form 2-T states: “If Seller fails to materially comply with any of Seller’s obligations under this Paragraph 8… and Buyer elects to terminate this Contract as a result of such failure or breach, then the Earnest Money Deposit and the Due Diligence Fee shall be refunded to Buyer and Seller shall reimburse to Buyer the reasonable costs actually incurred by Buyer in connection with Buyer’s Due Diligence without affecting any other remedies.”

Keep in mind that Standard Form 2-T gives the seller a little bit of wiggle room in terms of delivering good title to the Property. Specifically, paragraph 13 allows Seller to delay Settlement by as much as 14 days, even without Buyer’s consent, as long as Seller intends to complete the transaction, is acting in good faith and with reasonable diligence to proceed to Settlement, and gives proper notice of the delay to the Non-Delaying Party.

As a buyer agent facing this situation, the best way to protect your client is to notify the listing agent, in writing, that your client is ready, willing and able to complete Settlement on the Settlement Date. If Buyer is financing the purchase, your notice should state that all necessary financing is in place.

Once Buyer demonstrates his or her readiness, willingness and ability to complete Settlement on the Settlement Date, Buyer has the legal right to terminate the contract if Seller fails to deliver good title to the Property in a timely fashion. In that event, Buyer would be entitled to recover all of his or her damages incurred as a result of Seller’s breach, including a refund of the Due Diligence Fee.

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