Earnest Money Disputes in Texas
Earnest money is held by a neutral third party, usually the title company, and cannot be released to either side without a signed release from both parties or a court order. If a deal fails and the buyer and seller disagree on who is entitled to the money, the title company will generally hold it and may file an interpleader suit asking a court to decide. The contract's terms about default, termination rights and attorney's fees drive the outcome.
Who holds the money
In a typical Texas contract, the buyer deposits earnest money with a title company or escrow agent named in the contract. The escrow agent holds it as a neutral stakeholder. It does not decide who is right. Its role is to follow the contract's instructions and release funds only on a written agreement of the parties or a court order.
Typical scenarios
| Scenario | Usual result |
|---|---|
| Buyer terminates within the option period | Earnest money returned to the buyer. The seller keeps the option fee. |
| Buyer cannot get financing and the contract has a financing contingency met on time | Often returned to the buyer |
| Seller cannot deliver title or defaults | Returned to the buyer, who may have other remedies |
| Buyer defaults after the option period | The seller may be entitled to the earnest money as liquidated damages, depending on the contract |
The release requirement
When one side demands the money and the other objects, the escrow agent usually refuses to release it. It waits for a signed release from both parties or a court order. This is a source of frustration, because a party can refuse to sign even when the other believes they are clearly right. The contract may have a procedure for a written demand and a period to object, which should be followed exactly.
Interpleader and costs
- The escrow agent can deposit the money with the court and ask it to decide, then be released from the dispute.
- The agent's costs in doing so are often paid from the earnest money, reducing what the winning party receives.
- The standard form may allow the prevailing party to recover attorney's fees from the other side, which makes a weak position expensive.
How to avoid disputes
- Meet every deadline in the contract, and get extensions in writing.
- Send required notices by the method the contract specifies.
- Document repair requests, title objections and financing efforts.
- Get legal advice before you demand or refuse a release.
See option periods and title commitments.
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Book Free ConsultationFrequently asked questions
Can the seller keep the earnest money if the buyer backs out?
If the buyer defaults after the free termination rights end, the contract may entitle the seller to the money, but the escrow agent still needs a release or court order if the buyer objects.
Can the title company decide who is right?
No. It is a neutral holder and follows the contract's procedure.
How big is earnest money in Texas?
It is negotiated and set in the contract.
Do I need a lawyer for a dispute?
If the amount is significant or the other side refuses to release, legal advice is usually worthwhile.