Can Earnest Money Be Forfeited?

When buying a piece of property, earnest money might be a crucial component. I say this as a real estate investment advisor. The Supreme Court recently decided that a seller of real estate might keep the earnest money paid by a buyer. According to the court, if a purchaser fails to pay the balance as stipulated in the contract, the seller may keep the earnest money that was provided by the buyer of a property. This is referred to as

earnest money forfeited from a prospective buyer. Read to know more about it.

Can earnest money be forfeited?

According to the Court, an earnest deposit is required to bind an agreement. Therefore, if the sale of the property is cancelled due to the buyer's error, the seller is allowed to keep the money. The earnest money is paid at the point of contract signing and serves as a guarantee for the contract's proper performance. If the depositor fails to perform, it may be forfeited.

The Delhi High Court judgement holding that the vendor is only entitled to forfeit a nominal sum and not the total sum was overturned by the Supreme Court. The Court holds that a buyer may be required to surrender all of the money, regardless of the amount. However, if it is agreed upon, in the event that the seller breaches the contract, the buyer may be entitled to double the purchase price.

Can earnest money deposit be forfeited for insufficient documents?

Yes, it can be. Additionally, the Court has made it clear that a portion of the purchase cost cannot be lost unless it serves as a guarantee for the proper fulfilment of the contract. It might be forfeited if the depositor doesn't follow through.

The Supreme Court overruled the Delhi High Court decision finding that the seller is only authoriSed to lose a nominal amount and not the entire sum. The Court concludes that, regardless of the sum, a buyer may be obliged to forfeit all of the money. However, if it is decided upon, the purchaser may very well be entitled to twice the purchase price in the case that the seller violates the terms of the agreement.

The Court has also made it abundantly apparent that a part of the purchase price cannot be forfeited unless it acts as a security for the proper performance of the contract.

It should be noted that the intent as shown by the circumstances and the contract will determine whether a sum left with a seller of real estate qualifies as earnest money that may be forfeited in the event of the buyer's non-performance. The deposit may be forfeited by the seller in the case of non-performance by the buyer if the contract specifically states that it is intended to be a performance guarantee.

This is all you need to be aware of earnest money forfeited from a prospective buyer.