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.

Jonathan A. Goodman is a shareholder in Frascona, Joiner, Goodman and Greenstein, P.C., a Colorado law firm.   His practice areas include Real Estate, Brokerage Law, Contracts, Land Use, Leasing, Real Estate Title, Association Law, Business Law, and Finance.   He can be reached at contact Jonathan Goodman.

A version of this article appeared in the Colorado REALTOR® News, the monthly publication of the Colorado Association of REALTORS®.

Disclaimer -- Content is general information only. Information is not provided as advice for a specific matter, nor does its publication create an attorney-client relationship. Laws vary from one state to another. For legal advice on a specific matter, consult an attorney.