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Can I keep the deposit if my buyer defaults?

What happens when one party defaults in the sale

Can a seller keep the buyer’s deposit, if the buyer backs out in a sale? That depends on the contract’s contingencies… Many conflicts arise after a buyer decides not to proceed with the purchase. The greater source of problem is the deposit money recovery.

Unless there’s no “liquidated damages” clause in the contract, the seller can retain the buyer’s deposit. This clause must be a reasonable amount, reflecting the actual damages for both buyer and seller. These damages may include lawyer’s fees, loss of rent during vacancy period, etc.

Take note: release of the deposit money won’t be immediate. Sellers can goad the buyer to still purchase the home no matter what. Since a house may take time to find another interested buyer, the seller may have to incur more costs on its maintenance – and thus, be very nervous if the buyer backs out. Still, if the buyer cancels the contract, and there’s no liquidated damages clause, the seller can make claim for actual damages. The risk here is he could receive a lower amount than the actual deposit.

Sellers do not have to pay any penalty should they back out of the contract – if they have the said contingency. If problems with the deposit money still arise, buyers and sellers will just have to settle in court.

Not everything is against the buyer. That is why a contract has to be mutually beneficial… Suppose the deposit money is over 25 percent of the house’s value, it would be unfair for the seller to keep the entire amount. Depending on the court’s decision, the buyer may still recover a part of the deposit money.

Most importantly, always have your lawyer review the contract first before signing.

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