Of course, the answer depends on the specific facts of your situation and the contract itself. Since you are writing from Kirkland, WA, Iâ€™m going to assume that your contract is written on standard NWMLS forms, including the financing addendum (Form 22A). Under Form 22A, if you are unable to obtain financing by the closing date and you have not waived the financing contingency, then you will be entitled to a refund of your earnest money legally, provided that you made timely application for financing, had sufficient funds to close and made a good faith effort to obtain financing. If you previously waived the financing contingency, then the delay by the lender is not a legal excuse, you will be in default and the sellers will be entitled to the earnest money. And, so long as the sellers did not cause or contribute to the delay in financing, the seller is not required to extend the closing date â€“ not even by one day and even if the seller granted previous extensions â€“ unless the contract says so. Wallace Real Estate Inv., Inc. v. Groves, 124 Wn.2d 881, 881 P.2d 1010 (1994).
However, as Ardell points out, the closing agent or selling brokerage firm holding your earnest money cannot actually disburse the earnest money to either party without the written agreement of all parties. In other words, you may be entitled to the earnest money legally, but as a practical matter, you may not be able to recover the earnest money without a lawsuit. This is because a judge, rather than the closing agent or real estate broker, must decide who is entitled to the earnest money in the event of an actual dispute. Edmonds v. John L. Scott Real Estate, Inc., 87 Wn.App. 834, 942 P.2d 1072 (1997), review denied, 134 Wn.2d 1027, 958 P.2d 313 (1998).
Under NWMLS forms, if the closing agent receives conflicting demands for the earnest money (i.e., sellers say â€œgive the earnest money to meâ€ and you say â€œgive it to meâ€), the closing agent is supposed to file an interpleader action and deposit the earnest money into court, where a judge will decide which party gets the earnest money. However, an interpleader action is a lawsuit, which has several negative consequences: lawsuits are expensive, time-consuming, stressful, inconvenient and risky. Most people have a false impression from TV shows that in a couple weeks both parties will go tell the judge their side of the story and the judge will dispense instant justice! Thatâ€™s not how it works in real life. Rather, both parties will have to hire attorneys (because most people donâ€™t know or understand the procedural rules followed in court), the parties have to file and serve formal pleadings (answers, cross-claims, replies and third-party complaints), the parties will serve and respond to interrogatories and requests for production of documents, the parties will take depositions of key witnesses, the case will be transferred to mandatory arbitration (if the amount of the earnest money is $50,000 or less), the parties will submit prehearing statements of proof, and then the parties will attend an arbitration hearing. Get the picture? Itâ€™s much more involved than either party probably ever imagined!
Itâ€™s true that the prevailing party will be entitled to recover their attorneyâ€™s fees and court costs. However, again, what actually happens is not always what should happen. Arbitrators are required to award attorneyâ€™s fees to the prevailing party in a contract dispute, but the arbitrator has discretion as to the amount to award. Often, the arbitrator concludes that the amount in controversy doesnâ€™t justify the amount incurred by the prevailing party, so the arbitrator awards less than the full amount incurred as â€œreasonableâ€ attorneyâ€™s fees. In short, unless the earnest money deposit is substantial, the attorneyâ€™s fees incurred by each party typically exceeds the amount in controversy in a residential transaction!
There is a simple and inexpensive solution. By agreement, the parties could submit the dispute to binding private arbitration. State law (RCW 7.04A) authorized private arbitration, where the dispute would not be governed by burdensome procedural rules and could be resolved quickly and inexpensively. For more information, go to the â€œArbitrationâ€ page on my web site, http://www.RE-LAW.com.