Earnest Money in Oregon

The Department of Treasury defines earnest money as:

a sum of money given to bind an agreement, such as the sale of real estate, the advance of a loan or some other transaction requiring a deposit. Earnest money is forfeited by the donor if he or she fails to carry out the terms of the contract or agreement.

In Oregon, earnest money is collected at the time the offer is written. Most commonly by check, a personal check is okay, a promissory note may also be used that will be redeemed if the offer is accepted. If a check is taken, it is held pending mutual acceptance and then deposited within 72 hours. The Note is redeemed and deposited within the same 72 hours. It has the same effect but requires more paperwork.

The Oregon Residential Real Estate Agreement includes this verbiage about earnest money.

EARNEST MONEY PAYMENT/REFUND: If (1) Seller does not approve this Agreement; or (2) Seller approves this Agreement but fails to furnish marketable title; or (3) Seller fails to complete this transaction in accordance with this Agreement, or perform any other act as herein provided; or (4) any condition which Buyer has made an express contingency in this Agreement (and has not been otherwise waived) fails through no fault of Buyer, then all earnest money shall be promptly refunded to Buyer. However, acceptance by Buyer of the refund shall not constitute a waiver of other legal remedies available to Buyer. If Seller signs this Agreement and title is marketable; and (1) Buyer has misrepresented Buyer’s financial status; or (2) Buyer’s bank does not pay, when presented, any check given as earnest money; or (3) Buyer fails to redeem, when due, any note given as earnest money; or (4) Buyer fails to complete this transaction in accordance with this Agreement, or perform any other act as herein provided, then all earnest money paid or agreed to be paid shall be paid to Seller either as liquidated damages or as otherwise allowed under Oregon law, and this transaction shall be terminated. It is the intention of the parties that Seller’s sole remedy against Buyer for Buyer’s failure to close this transaction shall be limited to the amount of earnest money paid or agreed to be paid herein.

The section outlines who gets the earnest money and for what reason. In Oregon, earnest money is usually deposited with the escrow/title company. They are the neutral third party and only move money when all parties agree in writing. If the buyer fails to perform and loses their earnest money, they cannot be held liable for any additional damages. If the seller fails to perform and the earnest money is returned to the buyer, the buyer may still sue the seller for further damages or the transfer of the property. If your transaction was to get to this stage, legal council would be a must.

How much earnest money? We’ll discuss that in a post soon.

10 Comments on “Earnest Money in Oregon

  1. Ok, I have a tricky one that no one has hit on yet. I hope someone can offer me some insight on how I should proceed…..

    I made an offer on a F/C fixer property in Portland. Bank stated on listing that it’s CASH only offers, no warranties made, as-is.
    Big house, 1000 sq ft main flr, 1000 sq ft upper, and 1000 sq ft basement. My agent asked me to write out EM check that day to make offer stronger to bank (I made it for $2400, I loved the house!). I heard back from bank the next day with a counter offer. I responded next day with a counter. Next day (before any offers accepted) my agent let me in to do an inspection with a licensed inspector (her regular inspector), he said property needs work but looks great. Next day the bank counters again and also asks/requires me to waive any inspections (property to be sold as is). They have no idea that I’ve already done an inspection. I felt comfortable with the inspectors findings and agreed to waive inspection. Next day bank agrees on my price and we’re in contract. I think about it over next 48 hours and realize I better get a structural inspector out there just to be sure I’m not buying a money pit (since this is all cash deal it’s taking most of my nest egg to purchase and I need to be sure how much $ repairs are needed). Structural inspector finds the house (built in 1919) was lifted off foundation at some time and the basement, that was originally 4ft, was built higher to an 8ft height using blocks WITH NO REBAR OR REINFORCEMENT. He could see recent repairs done over the years and new cracks since then showing that the house is crushing the basement walls/foundation. His estimate was $50k-$100k to completely redo basement properly so it will be safe…..and financeable to next buyer down the road. I don’t have that much money so the next day I cancel stating the foundation issue was not disclosed to me (and if they didn’t know about it, it’s now disclosed to them). Escrow required me to sign a termination agreement to get my EM back (which I did but crossed out “money to be returned to Seller”, which was pre-printed, and wrote in “to Buyer” and added the reason for termination at bottom of page), but they said I still have to wait for the bank to sign it too. It’s been a month now, house is in escrow with someone else, escrow doesn’t want to help, agent doesn’t want to help and I don’t know which way to go next or if I even have a case. I’d be happy splitting it (even though I know they didn’t have any costs) if someone would just talk to me and ask.
    I appreciate any comments to help

  2. Michele,

    Once earnest money is deposited, both parties have to agree in writing where the money goes. Since the transaction is dead, and the bank acknowledges that by going into escrow with another party, one must assume that the escrow company doesn’t want to be holding onto the funds. They probably have the best channels for getting the money moving.

    Beyond that, you may need to seek legal advice.

    Out of interest: was your agent also representing the bank?

  3. I am selling a house trying to break even. An offer that puts me into a shortsale came in. My agent made sure that the buyers agent knew it would be a short sale and wanted to make sure that the buyers were willing to invest in the time it would take to go through a short sale. They assured us that they were so we accepted the offer and $1000 earnest money. Almost 1 month passed and now they cancelled the offer stating that it is taking too long. Am I entitled to keep the earnest money or are the buyers entitled? Thanks

  4. You should consult a real estate attorney if you have questions about who is entitled to the earnest money. Your question doesn’t make it clear how through the process you were. The Short Sale Addendum states that the time-frames (with the exception of closing date) in the Earnest Money Agreement (the offer) do not start until third party (bank) approval is received so prior to that earnest money wouldn’t even be due or collected. After that if the buyer backed out due to a contingency in the offer they would be entitled to the EM.

  5. Please explain the earnest money agreement further. For example, how long can earnest money stay in an account without before buying real property? Thank you.

  6. Earnest money isn’t deposited with escrow until there is mutual agreement on a property: property is sale pending. The earnest money is the money put up that they won’t just change their minds and walk away. There a contingencies (inspection, disclosure review, financing) that would allow the buyer to back out if any of those contingencies could not be met and they would be entitled to their EM back. Escrow is a neutral third party so both parties have to agree to release the EM even if it is clear who is entitled. Worst case scenario is it goes to court.

    A few things to consider:

    * Currently, in Oregon, the cap for small claims court is $10,000. If there is an earnest money dispute small claims court is a preferably place to resolve the issue.

    * Earnest money is the entire amount a buyer can be held responsible for not buying.

    * Rarely do we see sellers keep any earnest money. It does happen but probably in less than 1% of all terminated transactions. For the most part buyer’s don’t simply walk away once all the contingencies are lifted. If they terminate using a valid contingency the seller has no claim to the EM.

    * 1% to 2% might be a good rule of thumb and there may be a valid reason for it to be higher or lower with a specific situation.

  7. As a seller, we agreed to a 30 day closing date after buyer accepted our counteroffer. We have to move to a rental home since we have not found another home to buy yet. We have to make rental deposits and deposits with a moving company/ storage POD. If the buyer backs out before closing ( which is 3 days before we have to move out of our home), will we have the right to the earnest money which would help cover our forfeited moving/rental deposits?

  8. It depends. The buyer probably still has certain contingencies in the contract that would entitle them to get their earnest money back. If they lost their financing, for example, they would probably be entitled to getting their earnest money (EM) back. If the buyer was simply to change their mind, or all the contingencies in the contract had been met and they backed out, that is where you would likely be entitled to their earnest money. If a contract falls out, both parties have to agree what happens with the earnest money or a court has to decide. Ultimately, get advice from your Realtor on the specific situation.

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