The Real Estate Encyclopedia
How Is A Cancelled Or Terminated Contract Handled?
Category - Home Buying Questions - Buying Legal & Closing FAQ's

The first thing to do when the buyer or seller wishes to terminate the contract is to notify the other party in writing of their intent. Most states provide pre-printed “notification” forms which must be filled in by the representing agent.  The notification form usually includes the reason for the termination and the disposition of the earnest money.  


Once all parties are notified and everyone is in agreement as to the disposition of the earnest money, a copy of the termination agreement is submitted to the broker holding the earnest money in trust.  If the disposition of the earnest money is not contested, the holding broker will send a check to the recipient of the funds. 


If the earnest money is contested, the matter is handled as specified by the purchase contract and submitted to the proper legal entity.  A consumer should review the purchase contract to determine the provisions covering earnest money.


A consumer may have contractual rights against the broker which can be pursued in civil or Small Claims court, if the broker holding the earnest money in trust fails to disburse the funds promptly. If a complaint is filed against the broker the civil or Small Claims department will investigate the facts of the case which could possibly result in administrative discipline against the broker. Please bear in mind that this department is not a court of law and cannot order the broker to pay a consumer damages or return monies to which a consumer may have a right.


Even if a purchase contract is terminated because the parties could not agree on the purchase price or other terms, a contract termination notification should be submitted, in writing, by the agent representing the terminating party to ensure all terms of the agreement are legally voided.

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