Do you know that nonrefundable or “hard” escrow deposits are not necessarily easily released? In most cases, the Title Company holding escrow will require signatures of consent from BOTH parties (buyer & seller) in order to release the funds.
Recently, Crystal and I participated in a transaction where we represented the seller. The buyer requested, and was granted an extension, because he was willing to pledge additional “nonrefundable money”.
Unfortunately, the buyer could not meet the extension deadline, and as a result the seller requested the nonrefundable money from the Title Company. At that point, the buyer would NOT sign the release of escrow form because he wanted another extension. The title company would not distribute the funds. Because the buyer had the leverage of the funds, which were desperately needed by the seller, the seller (in his opinion) had no choice but to sign another extension; thankfully the purchase & sale were completed shortly thereafter.
According to Attorney Barry Miller, to help prevent a similar situation from happening again, “The contract can state that a deposit can be held by the seller.” Although we are not attorneys, it is our opinion that the contract should also state whether the money is or is not applied to the purchase price. In addition, it should state when and how these nonrefundable funds could be accessed.
The bottom line is, nonrefundable escrow deposits held by a third party, may not be easily obtainable even though you may be “entitled” to those funds. The money may have to be fought for, if both parties do not agree to release. If you are a seller, consider personally holding nonrefundable deposits, especially if you may be in need of the money.
What is a Escrow Deposit?
An escrow deposit is a good faith deposit not to be confused with a down payment. When buyers execute a purchase contract, the contract specifies how much money the buyer is initially putting up to secure the contract, to show "good faith," and how much money all together will be deposited as a down payment. The balance is generally financed as a mortgage or a combination of mortgages. An “earnest money” deposit says to the seller, "Yes, I am serious enough about buying your house that I'm willing to put my money where my mouth is."