Escrow Deposit Money

Deposit Money is a good faith deposit that is tendered on the purchase of real estate.  Massachusetts is a two state, typically a to purchase is signed (often called the offer) with a good faith deposit of typically $500 to a $1000.  Then with-in a week or two a purchase and sale is signed and a balance of typically 3-5% of the purchase price is tendered as the balance of the good faith deposit.

What Happens to the Escrow Deposit Money?

Most Real Estate Brokerages and Attorneys are Escrow Agents.  By law, escrow accounts are separate accounts and no other monies may be co-mingled with the escrow account.  Another important note is that escrow funds cannot be released unless both parties agree.  Obviously, if the transaction closes then both parties agree to release the escrow money deposit.  

There are typically two contingencies in the contract that allow the buyer to withdraw from the transaction of the deal and one contingency that allows the seller to withdraw from the transaction with all monies returned to the prospective buyers

Buyer Contingencies

  1. Most contracts allow for a mortgage contingency.  If a buyer does not receive a mortgage commitment (a conditional commitment from the bank that guarantees the money at closing) by a certain date then escrow deposit monies will returned to the buyer.
  2. Most contracts will allow for a home inspection contingency as well.  A buyer will have a certain amount of time to conduct all inspections.  Usually the inspections are at the buyer’s sole discretion.  If there is something not to the home buyers liking, the home buyer can withdraw from the contract and all escrow deposit monies will be returned.

Seller Contingencies

  1. Most Massachusetts Purchase and Sales agreements have language saying that the seller has a certain amount of time to make the property conform and provide a clear title.  Under this clause they, are committed to spend X amount of dollars and if they cannot after all reasonable efforts they can withdraw from the contract with no further recourse to the buyer and all escrow deposit monies be returned to the buyer.

What Happens to Escrow Deposit Monies if the Home Buyer defaults?

What can happen?  A buyer gets cold feet, loses a job, or their credit profile can change.  If the buyer defaults on the contract outside the contract contingencies the buyers escrow deposit money is at risk.  From a buyers standpoint, you want to risk as little money as possible to get a contract accepted, put the mortgage contingency date out as long as possible, make sure you have a stable job and do not make any credit profile changes that will affect your ability to obtain a loan.

In Massachusetts, most contracts state that upon buyer their escrow deposit money is the sole remedy.  The buyer cannot be sued for specific performances.  In other states, buyers can be sued for specific performance.

What Happens to Escrow Deposit Monies if the Home Seller defaults?

What can happen?  Sometimes a seller just changes their mind.  if the seller defaults then the escrow money deposits should be returned to the buyer.  In Massachusetts a buyer can sue for performance as well as any damages incurred…. such as interim housing, moving costs etc…

Regardless of who defaults, it is important to note that for an escrow agent to release deposit monies most parties must agree or court ordered.  So say the buyer defaults but insist on their deposit monies back and the seller insists on keeping the deposit what happens?  The escrow money will be kept in the escrow account until the parties come to an agreement or the courts order what is to be done with the deposits.  When the parties disagree is where it can get sticky.  Buyers and sellers think it is as easy as just getting access to the escrow deposit, but its not that simple.

If you are the defaulting party and it is clear you have defaulted and the parties cannot come to agreement, most likely if you go to court you will lose.  On top of losing the deposit, you will have also incurred legal costs to recoup the money.  If we are talking about a $5,000 deposit you are probably going to incur a minimum of $3000 to $5,000 to get the money held in escrow.  Not worth it.  If you are talking about $30,000 it may be worth letting the courts decide.  Also, if you are the seller, while the money is in dispute you could be in a very sticky situation about whether you can go on to sell your house to another party in that situation.

Protecting your Escrow Money Deposit

A good buyer’s agent will help you protect your escrow money deposit by understanding what risks you might have in the transaction.  More importantly a buyer’s agent will track the critical dates that help protect your deposit with contingencies.  Again the two most common contingencies are the home inspection contingency and the mortgage contingency.

Hire an Attorney at the First Sign of Trouble

When you first suspect that you will default on a contract, contact a immediately.  Provide your attorney with all the documents and contracts you have regarding the transaction.  There may be a simple way for you to withdraw from the contract with little or no financial loss to you.  Or, if it is very clear you are defaulting based upon the contracts the attorney can provide you with the best route to go to minimize your losses.


This post, Escrow Deposit Money, was provided by Kevin Vitali of EXIT Group One Real Estate.  Kevin is happy to answer any of your questions regarding the sale or buying of a home  and can be reached at 978-360-0422 at anytime.


Leave a Reply

Your email address will not be published. Required fields are marked *