We all hate it, but sometimes, a deal falls through. When a contract collapses prior to closing what happens to the escrow money? Well, that all depends on how and why the deal fell apart.
For example if the sale was canceled because of the home inspection or because of the condominium or HOA docs, provided the notice was timely, then the escrow is simply returned to the buyer. But it’s not always that simple.
When the parties cannot come to an agreement as to the release of escrow, and they make conflicting demands for the funds, the escrow agent will generally not be able to release the funds to either party. An escrow agent (or broker) shouldn’t release funds unless both parties sign a release.
As real estate brokers and agents, we are specifically prohibited from giving legal advice, but our experience is sometimes helpful. So, if you’re involved in a sticky situation, your first resource is your Realtor. If your situation evolves into a legal question, then your Nesbitt Realty Realtor has access to a legal hotline which can answer some basic questions.
However, if the situation is too complicated to be resolved by a simple and straight-forward question, your Realtor is obligated to recommend that you consult your own attorney.
Source: Money Issues After a Failed Sale