Can sellers keep our earnest money?

UPDATED: Sep 30, 2022

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Can sellers keep our earnest money?

We had a pre-approval letter stating that we could get financed for a house. We then found a house and put an offer on it. Come of find out the leader we were going with could not finance us. We then found a different lender that said they could. At this time we were about a week away from our 30 day time limit to get financing per our contract. After we finished getting new lender everything he needed, he tells us he can not get us the loan unless we pay off our car. Our debt to income ratio was too high. Now we have no time and our 30 days is up that day. Our realtor sends an amendment to the sellers asking for an extension for us to try to figure out what to do. She gets conformation from their realtor that she did receive the form and that they will sign it that night. We never get it. 3 days after that we decide that we won’t be able to get the house and send over the cancellation letter saying that we want our earnest money back seeing that it was due to financing. We get one back saying that they are keeping our earnest money. Can they do that? We sent them paperwork to extend our financing. We got voice confirmation saying that they received it and will sign it and then we never get it back. It seems to me like they knew they could keep our earnest money if let the contract expire.

Asked on June 3, 2016 under Real Estate Law, Wisconsin


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 6 years ago | Contributor

They may well have known that they could keep your earnest money if the contract well through, since it is their right to do that. If you can't complete a sale due to financing issues, the seller is allowed to keep your earnest money unless and only if the contract of sale contained a "finance contingency" or "mortgage contingency" allowing you to terminate the sale and get your money back, and you complied with all the requirmements (e.g. terminating by a certain date) of that contingency. Otherwise, when there is no such contingency, the seller can keep the earnest money when the sale falls through due to financing issues.

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