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Bounced Earnest Money

If the earnest money bounces, can the seller terminate?

A buyer (Buyer #2) submitted an offer for a property on which another buyer (Buyer #1) had already made an offer. Buyer #1 provided a post-dated earnest money check which the Seller knew could not be covered at the time it was tendered. The date on the earnest money check has since passed without Buyer #1 being able to cover it.

Either the failure to honor the earnest money check or the failure of Buyer #1 to apply for the loan by the date specified in paragraph 4(a) of the Real Estate Commission approved contract form is a breach on the part of Buyer #1, allowing the seller to terminate the contract with Buyer #1 pursuant to paragraph 16(a). However, though the language in the contract makes this conclusion clear, Buyer #1 may assert frivolous claims against the seller. Depending upon the belligerence of Buyer #1, it may still be prudent for the Seller to proceed cautiously though the contract with Buyer #1 until it has terminated.