Is there a contract if the earnest money deposit hasn’t been paid?
QUESTION: One of my listings recently went under contract using the Offer to Purchase and Contract (form 2-T). The Initial Earnest Money Deposit was to be paid by personal check and delivered within 5 days of the Effective Date. The EMD is now 2 days late. I’ve been contacted by a buyer agent who says she has a buyer who wants to make a full-price offer. My seller wants to know if there a binding contract on the property with the first buyer since the EMD hasn’t been timely delivered, and if so, may he terminate the contract and sign a contract with the second buyer?
ANSWER: In our opinion, there is a binding contact on the property. See the wording immediately above the signature/date lines in the Contract: “Buyer’s failure to timely deliver any fee, deposit or other payment provided for herein shall not prevent this offer from becoming a binding contract, provided that any such failure shall give Seller certain rights to terminate the contract as described herein or as otherwise provided by law.”
The answer to your seller’s second question is yes, he can terminate the contract. However, he must follow the 2-step process set forth in the Contract if the Initial EMD or Due Diligence Fee is not delivered by its due date. According to paragraph 1(d), the buyer has one banking day following written notice to deliver “immediately available funds” (i.e., cash, wire transfer, certified check, etc.) to the payee. If such funds are not timely delivered, the seller can terminate the contract by written notice to the buyer. A new form called the “Notice to Deliver Cash or Immediately Available Funds” (form 355-T) may be used to satisfy the first step of the termination process. The “Notice to Buyer” (form 352-T or 353-T, depending on whether the parties used contract form 2-T or 12-T) may be used to satisfy the second step of the process.
The seller should be advised to seek legal counsel regarding his rights and obligations in this situation. Standard of Practice 1-7 of the REALTOR® Code of Ethics provides that after a seller accepts an offer, “REALTORS® shall recommend that sellers…obtain the advice of legal counsel prior to acceptance of a subsequent offer except where the acceptance is contingent on the termination of the pre-existing purchase contract…” (i.e., a back-up offer).
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