Guide on Earnest Money Disputes

There are two main standardized forms used in California for real estate transactions. The forms cover a range of issues including what conditions must be met before a transaction can be finalized, to specifics on fees, to guidelines on what will happen during a dispute regarding the purchase or sale.

The two most widely used purchase contracts are the PRDS (Peninsula Regional Data Service) purchase agreement and the CAR (California Association of Realtors) purchase agreement.

Earnest money disputes arise after a buyer has provided their initial deposit, which is generally 3% of the purchase price, into escrow.

If there is a dispute, the buyer and seller must go through the dispute resolution process/ For almost all disputes, the parties must go through mediation before they’re allowed to go to arbitration or to court (if they did not agree to the arbitration provision) . IF they don’t follow this “mediation first” process, they give up there rights to collect attorney fees at arbitration or in court if they’re deemed a prevailing party.

What happens with this process generally? First, the party that is not completing the purchase agreement must send out the Notice of Cancellation. After that, there will be negotiations between the parties, whether informal through their real estate brokers or salespeople, or their attorneys, followed by mediation, and then potentially arbitration.

What happens with the earnest money funds? Title companies will hold onto these funds for a period of time. IF there is a good faith dispute between the parties, and a subsequent filing of action, the escrow holder will deposit the sum in dispute with the court where the action is filed. If you’d like to talk to Elena Rivkin about a purchase agreement dispute, and an earnest money deposit issue, you can set up a complimentary consultation here.