Here are the only three ways to get your earnest money back in Maryland.
How do you get your earnest money back? That can be a bit of a sticky situation, especially when neither party is informed of the proper protocols here in the state of Maryland. With regard to the contract, it’s usually pretty clear who’s entitled to the earnest money deposit, but that doesn’t mean everyone will agree on that entitlement. Here are the existing three avenues for getting your earnest money back:
1. A letter from the broker. Disclaimer: This is an outdated and seldom-used approach, mainly because the process has changed—for the better. Back in the day, the real estate broker used to hold on to the earnest money deposit. Though, as you can imagine, that’s a lot of liability, so the holding role shifted over to the title companies (since they’re the ones who eventually end up with that money anyway).
Traditionally, a broker’s letter is sent to both parties and says something like, “I believe that the earnest money should go to person X, and if neither party objects in the next 30 days, we’ll go ahead and give it to person X.” Clearly, there are a lot of problems with this approach. First of all, if there’s a true dispute going on, person Y will always object, thereby eliminating the letter’s validity. Second, it’s an ethical mess; as agents in the state of Maryland, we have a fiduciary responsibility to one party in the transaction. We can’t act as neutral third-party deposit holders because we’re doomed to demonstrate either a conflict of interest or a failing of our fiduciary duties.
Gray areas can crop up in a contract, but sometimes, involving attorneys and judges isn’t worth the hassle to either party.
2. An interpleader with the court. You can file for the court to hear your case, and they’ll look at the terms of the contract to determine who’s entitled to the earnest money deposit. Back when I had to hold earnest money deposits as a broker, this is the only reason I ever went to court. I would basically ask the judge to tell me who I should disburse the money to. In every case I was involved in, one of the parties failed to show up to court. Naturally, the judge decided that the present party would receive the money, and that was that—I was given a court order instructing me to release the funds.
3. An agreement signed by both parties. If the first two options sound like total hassles, that’s because they are. Thankfully, this third option is doubtless the easiest way. With this approach, you’re actually releasing the contract (though that’s not normally necessary, and a completely different topic best saved for another blog). This is also the most common way for earnest money to be released nowadays. For example, if a buyer’s financing falls apart before their financing contingency has expired, it’s pretty clear to both parties that the buyer is still entitled to their deposit. Even if there’s a true dispute (e.g. the buyer walks away for no reason at all but still wants their money back), the easiest resolution is for both parties to split it. Gray areas can crop up in a contract, but involving attorneys and judges usually isn’t worth the hassle to either party.
So there you have it—the only three ways to get your earnest money deposit back in the state of Maryland. As always, reach out to us by phone or email if you have questions about anything involving real estate. If we decide to answer it in one of our upcoming videos, we’ll send you a $25 gift card! It’s our privilege to be your trusted resource, and we hope to connect with you soon.