FACT OR FICTION? Release and Cancellation of Deposits
Most agents are under the impression a cancellation and release signed by all parties is required to release the deposit. This is a myth. Nowhere in the contract does it state that both parties must sign a cancellation to release the deposit. In fact, the contract states the deposit must be released to the buyer if they timely terminate the contract. For example, if the buyer delivers written notice to seller to terminate the contract during the inspection period in a timely fashion, then the seller must release the deposit to the buyer unless the buyer breached. Cancellation of a contract during an inspection period in an “As-Is” contract is pretty common and there usually aren’t a lot of reasons as to why a seller would retain the deposit.
Why do we use cancellations and release? Title companies and brokerages generally require these releases to protect themselves from any conflicting claims. In the event a seller fails to return a deposit without any reason to retain, I usually suggest the buyer send a demand to the seller and the title company to release the deposit. The contract contains an attorney fees provision and if the buyer has to incur fees and expenses to collect the deposit, the seller would be responsible. You can also add language in the additional terms that the deposit is released without a cancellation if the buyer timely terminates the contract and have the title company sign off. That usually does the trick!