Under Michigan contract law, when a buyer defaults on a purchase agreement and the seller retains the earnest money as the sole remedy, this arrangement is known as what?
Correct Answer
A) Liquidated damages
When a purchase agreement specifies that the seller may retain the earnest money deposit as the sole remedy upon buyer default, this is a liquidated damages clause. Michigan courts recognize liquidated damages provisions in real estate contracts as enforceable when the amount is a reasonable pre-estimate of actual damages and actual damages would be difficult to calculate. This is a common contractual remedy in Michigan residential purchase agreements.
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Related Topics & Key Terms
Key Terms:
Related Concepts
A counteroffer is a response to an original offer that changes one or more terms of the offer, effectively rejecting the original offer and creating a new offer. The party who makes the counteroffer becomes the new offeror.
Earnest money is a deposit made by the buyer at the time of the offer or shortly after to demonstrate good faith and serious intent to purchase the property. It is also called a good faith deposit.
Equitable title is the buyer's interest in a property after a purchase contract is signed but before closing, giving the buyer the right to acquire legal title in the future. The seller retains legal title until the deed is delivered at closing.
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