NC Supreme Court Decision Addressing Form 2-T and Buyer Breach

QUESTION: A buyer of one of my listings is terminating the contract and refusing to pay the Due Diligence Fee to my seller. I sent the buyer’s agent a copy of two NC REALTOR® Legal Q&As addressing a seller’s right to payment not only of the Due Diligence Fee, but also to recovery of any Earnest Money Deposit and attorney’s fees if the seller terminates the contract based on the buyer’s refusal to pay the Due Diligence Fee. However, the buyer will not budge. Are there any court decisions on this issue?

ANSWER: The North Carolina Supreme Court issued a decision addressing a similar set of facts and the Offer to Purchase and Contract (Form 2-T) on June 17, 2022. In Reynolds-Douglass v. Terhark, which you can read here, the buyer and seller entered into a contract in July 2017. Four days later, the buyer sent the seller an email stating that unless the seller reduced the purchase price by $5,500, the buyer would terminate. The seller responded by saying that the buyer was in breach of contract for failing to pay the Due Diligence Fee.

The contract terminated, and in September 2017, the seller successfully obtained a judgment in small claims court in the amount of the Due Diligence Fee, which was $2,000. The buyer appealed that decision to the district court, at which point the seller hired an attorney. The seller’s attorney amended the seller’s claim for damages to include the Due Diligence Fee, the Earnest Money Deposit (which was $2,500), loss of value to the home after it had to be re-listed, court costs, and attorney’s fees. The seller won again in district court on every claim except for the loss in value to the home. The buyer appealed the district court judgment to the NC Court of Appeals and then to the Supreme Court. Both appellate courts upheld the district court’s decision.

While there is no guarantee that your seller would have the same result in court, the Terhark case is at least one instance where a trial court and two appellate courts interpreted Form 2-T to entitle the seller to recover the Due Diligence Fee and Earnest Money Deposit (as well as court costs and attorney’s fees) as a result of the buyer’s breach of contract. Note that the Terhark decision was based on the 2017 version of Form 2-T. As stated in the Legal Q&A dated August 19, 2021, which you can read here, recent changes to Form 2-T make the damages the seller is entitled to if the buyer refuses to pay the Due Diligence Fee even more clear now than in 2017.

If the parties cannot work this issue out by consent, and the buyer refuses to pay the Due Diligence Fee, you should recommend that your client seek legal counsel if they wish to pursue damages.

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