What happens if a buyer pays earnest money, but decides to back out?
Bottom line—don’t offer earnest money in Texas unless you are serious. In a recent case in Texarkana, a buyer paid $60,000 earnest money for a house. He later decided to cancel the contract, and wanted his money back. The seller did not return the earnest money because it was part of the contract, so the buyer decided to sue. ABDM successfully defended the seller, and as a result the potential buyer not only forfeited the earnest money, but also had to pay the attorney’s fees.
The buyer had attempted to classify the earnest money as a penalty, but the contract stipulated that the earnest money was a, “Liquidated Damage Provision,” which is calculated to compensate the seller for financial loss if the buyer breaches the contract. The judge decided that the earnest money was fair and enforceable, and the case was appealed. The appellate court upheld the verdict and also ordered the buyer to cover the attorney fees for the seller.