What happens when a Buyer defaults on a binding Agreement of Sale for a real estate transaction in Pennsylvania? The first issue to resolve is how the Buyer’s deposit monies should be distributed by the Broker. Paragraph 26 of the Standard Pennsylvania Agreement of Sale contains the terms regarding Default, Termination and Return of Deposits.
If the Buyer terminates the Agreement of Sale pursuant to any right granted by the Agreement, the Buyer is entitled to a return of all deposit monies. For example, if the Property did not pass inspection or the Buyer did not obtain a Mortgage when a Mortgage Contingency was elected, the Agreement of Sale will be terminated and the deposit monies should be returned to the Buyer.
However, if the Buyer defaults on the Agreement of Sale by not purchasing the Property without any right, the Seller may be entitled to keep the Buyer’s deposit money and pursue other damages. It is important to note that the Broker cannot determine which party is entitled to deposit monies. The Broker is only permitted to distribute the deposit monies.
First, the Broker should try to get the Seller and Buyer to agree on who the deposit monies should be distributed to and have the Buyer and Seller enter into a written agreement evidencing that there is no dispute regarding deposit monies. However, if there is a dispute over deposit monies that is unresolved, litigation or mediation may be necessary for the Seller to keep the deposit monies. If there is a dispute over the deposit monies, the Broker should be notified of the pending litigation or mediation and the Broker should hold the deposit monies until there is a final Court Order or signed agreement between the Buyer and Seller.
Disputes over deposit monies are typically referred to Mediation offered by the local Association of Realtors. The mediation process must be concluded before any party can initiate legal proceedings. Additionally, the Seller is permitted to file a Writ of Summons in Court in order to toll the applicable Statute of Limitations on their claim while the mediation is pending.
If you are involved in dispute over deposit monies, please feel free to call me at (610) 417-6345 to discuss your case. My office is located Bethlehem, Pennsylvania, and I represent clients in Northampton County and Lehigh County.
