Earnest Money Dispute in Texas: Who Gets the Deposit When a Deal Falls Through?
When a Texas real estate deal falls apart, the first question is usually about money: who gets the earnest money? Under the standard Texas residential contract, the answer depends on why the deal ended. The title company holding the funds will not simply pick a side.
Who holds the earnest money
In most Texas deals, the earnest money sits with a title company acting as the escrow agent. The title company is a neutral stakeholder. It follows the contract and the paperwork, not whoever argues the loudest.
Why the deal ended matters
The buyer terminates during the option period. The buyer generally gets the earnest money back and forfeits only the option fee paid to the seller.
The buyer terminates under a contingency, such as financing or a title objection. The earnest money is generally refundable if the buyer followed the contract's deadlines and notice requirements.
The buyer defaults. The seller may be entitled to keep the earnest money, depending on the contract.
The seller defaults. The buyer may be entitled to a refund and, depending on the contract, other remedies.
How a release works
After a deal ends, the escrow agent typically asks both sides to sign a release of earnest money. If one side refuses, the other can send the title company a written demand. The title company generally passes the demand along, and if the other side does not object in writing within the time stated in the contract, the funds may be paid out to the party who made the demand. The standard contract also says a party who wrongfully refuses to sign a release can be liable for damages, the earnest money, attorney's fees, and costs.
If the title company freezes the funds
When both sides claim the money, the title company will often hold it until the parties agree or a court decides. Some title companies file an interpleader, which puts the money with the court. That can mean months of delay, and legal fees can exceed the deposit itself, so many earnest money disputes end in a negotiated split.
What to do if you are in a dispute
Read the termination, earnest money, and default paragraphs of your contract before you send anything.
Put demands and objections in writing, and keep proof of delivery.
Track every deadline. Many earnest money fights are lost because a notice came late.
Talk to an attorney before you sign or refuse to sign a release.
Every contract is different, and small wording changes can change the outcome. If you are facing an earnest money dispute, you can learn more about real estate litigation or reach out for a consultation.
This post is general information about Texas law, not legal advice, and does not create an attorney-client relationship.
