Escrow deposits are submitted by home buyers at the offer and Purchase and Sales stage of real estate transactions. They can range anywhere from a few thousand dollars to 5% of the purchase price. These funds are typically held in the escrow account of the listing agency and credited to the buyer at closing. However, what happens to escrow deposits when a deal falls thru in Massachusetts and never makes it to closing?  It all depends on the circumstances and parties involved.

Reason for Termination

There are several possible contingencies in Massachusetts purchase and sales agreements. The two most common are inspection and mortgage commitment. Home sale and home purchase contingencies are also common, depending on market conditions. For contingencies, the contract will normally state that if the contingency cannot be cleared by the set deadline, the deal may be terminated and buyer escrow deposits returned. If a buyer backs out for a reason or during a time frame not covered by a contingency, then sellers shall receive the funds as liquidated damages.

Release of Escrow Funds

This all seems straight-forward and works out as expected in 99% of the cases. However, what happens when one party disagrees? Escrow funds are typically not released unless there is a closing or both parties sign off on the release. This is extremely important to understand. The purchase and sales agreement includes terms that outline who should receive those funds should the deal fall through at certain stages. However, escrow agents still cannot release any funds until both parties sign off on it.

Resolving Disputes

Circumstances surrounding real estate dealings are rarely simple. Disputes are often based on unique and/or complicating factors. Often times, one or both parties will file suit to resolve the issue. An escrow agent will release funds per instructions from a court proceeding. However, this can be an expensive process for both parties. It’s usually in everyone’s best interests to compromise.

Summary of What Happens to Escrow Deposits When a Deal Falls Thru in Massachusetts

So, in summary, escrow deposits are normally released to either buyer or seller when a deal falls thru. In most transactions, funds are distributed per the terms outlined in the Purchase and Sales Agreement. However, extenuating circumstances can lead the parties to disagree on the release. In that case, a mediator or judge will make the decision after reviewing evidence from both parties. Either way, an escrow agent will not release any funds until either directed by the courts or receiving a signed release by both parties.