A. Earnest Money

The purchaser presents negotiable funds as an earnest money deposit to show “earnest intent” to complete the purchase transaction on the subject property. In the event of an NSF check, the contract becomes voidable. The purchaser may have a cure period, as specified in the contract, and after the cure period, unless replacement funds are deposited, the contract could be voided or unilaterally cancelled by the seller (homebuilder).

Homebuilders do not always deposit earnest money into a trust account or with a title company. Homebuilders will sometimes deposit earnest money funds into their operating account, which is legal, because the homebuilder is the seller. However, this practice must be disclosed to the purchaser. If earnest money funds are to be deposited in the homebuilder’s operating account, per the Arizona Department of Real Estate Commissioner’s Rules R4-28-803, the following disclosure must be included in the Disclosure Report and the Purchase Contract:

Purchaser is advised that earnest money deposits, down payments, and other advanced money will not be placed in a neutral escrow account, but rather, such funds will be deposited in Seller’s general account and will be used by Seller. This means that Purchaser assumes the risk of losing such monies if Seller is unable or unwilling to perform under the terms of this Agreement.