A buyer in Bismarck, North Dakota makes an offer on a home with $5,000 earnest money deposited with the listing broker. The seller accepts the offer. Two weeks before closing, the buyer defaults by refusing to proceed with the purchase without any legally valid reason. The purchase agreement states that in the event of buyer default, the seller may retain the earnest money as liquidated damages. Under North Dakota law, which of the following best describes what happens to the earnest money?
Correct Answer
A) The seller may retain the earnest money as liquidated damages per the contract terms
When a purchase agreement contains a valid liquidated damages clause stating that the seller may retain the earnest money upon buyer default, and the buyer defaults without legal justification, the seller is entitled to retain the earnest money as liquidated damages. This is a standard and enforceable contractual remedy under North Dakota contract law. The earnest money held in the broker's trust account is disbursed to the seller per the contract terms upon documented buyer default.
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