What Happens If You Only Put Down a Deposit in Escrow and Want to Exit the Purchase Before Closing?

It is possible to get out of a purchase contract, but you will most likely lose your escrow deposit, commonly referred to as "earnest money." This deposit is required to avoid buyers who change their minds without a valid reason and potentially withdraw from the purchase contract.

Quick Answer: Yes, but at a Cost

The money in escrow demonstrates your intent to complete the sale, effectively removing the property from the marketplace. This can cause damage to the seller by losses in any competitive sale. Before making any decision, you should check with your Mortgage Lender for the specific amount of loss involved in refunding the escrow money.

Disclaimer

I am a Researcher Scholar, Credit Consultant, and Consumer Advocate. I am not Licensed to provide either Legal or Financial Advice. Please consult a Licensed Professional before making any Legally Binding or Consequential decisions or taking any actions in relationship to the Guidance and Information presented by me on the Quora site.

What If You Delay Closing a Week?

Once any sale contingencies have expired or been satisfied within one week of closing, you cannot get out of the purchase without penalty. If your default is limited to the hand money, the penalty is most likely to be substantial.

I know of someone who forfeited $80,000 in hand money as liquidated damages. This common practice, called liquidated damages in residential sales, often includes not only the loss of the hand money but also the loss of bargain and resultant damages.

The seller will present a list of damages, such as having to get a bridge loan to purchase the new house they are moving to, moving company cancellation damages, and potentially a very large difference in the sale price between what you agreed to pay and the price the seller ultimately gets. Additionally, you will face substantial attorney's fees to defend yourself.

Exiting the Purchase Agreement Without Breaching It

To exit the purchase agreement without breaching it, you must follow the cancellation terms of the agreement. Typically, a buyer would cancel based on a contingency, such as property condition or inability to obtain financing.

If the buyer does not have a legally allowed reason for canceling the agreement, the buyer risks liability for breaching the agreement. This can include losing their deposit and being sued for damages.

What to Do Next?

The best course of action is to speak to a qualified real estate attorney in your area. At the very least, it is crucial to discuss your options with an experienced real estate agent who can provide you with practical advice tailored to your specific situation.