How to Recover Earnest Money Deposit After a Purchase Falls Through

It happens countless times. A prospective buyer tenders a $10,000 deposit to a seller for a residential property. But prior to closing, a financing problem prevents the buyer from completing the sale. Most residential agreements of sale contain a mortgage contingency where the buyer may back out if financing is denied. The buyer is usually entitled to full return of the earnest money if denied financing.



Aggravated sellers often look for reasons to keep the deposit when the buyer’s financing is denied. One common dispute is over whether the buyer misled the seller as to creditworthiness. The seller’s argument is usually that no offer would have been made to the buyer if the seller had known of the credit issue.


Disputes over earnest money must usually be resolved through mediation before a lawsuit is filed. Most residential agreements contain a meditation clause which requires the parties to attempt meditation. Mediation is usually cost effective – approximately $300-$500 to pay the mediation fee and the mediator. Mediation is also resolved in a half day session rather than drawn out litigation. 


The benefit to the seller and buyer is that most disputes in mediation are settled. Neither party is required to accept a settlement, but the parties usually do so because the eventual court appearances can become expensive. 


As a real estate attorney, I help resolve property disputes. If you know a buyer or seller involved in an earnest money dispute, please forward our contact information:


Phone: (484) 690-4613




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