A buyer deposits $15,000 in earnest money with the title company. After the option period expires, the buyer defaults on the contract. The seller terminates and demands the earnest money. The title company holds the funds. Under TREC rules, what must happen before the earnest money can be released?
Correct Answer
C) Both buyer and seller must sign a release authorizing the disbursement, or a court must order the release
Under TREC rules, the escrow agent (title company) cannot release disputed earnest money without either mutual agreement from both parties (signed release) or a court order. The escrow agent must remain neutral.
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Related Topics & Key Terms
Key Terms:
Related Concepts
Liquidated damages are a predetermined amount of money specified in the contract that the non-breaching party is entitled to receive if the other party breaches. In real estate, the earnest money deposit typically serves as liquidated damages.
Novation is the substitution of a new contract for an existing one, or the replacement of one party with a new party, with the consent of all parties involved. The original party is completely released from all obligations.
Offer and acceptance is the process by which one party proposes specific terms for a contract and the other party agrees to those exact terms, creating mutual assent. This mutual agreement, also called a meeting of the minds, is an essential element of every valid contract.
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