“When is a deposit supposed to be refundable and when is it supposed to be forfeited?”
Great question…long answer!
Deposits tend to be fully refundable provided you have not broken the contract and you still have active contingencies.
Said another way…
Your contract gives you certain contingencies, which are rights to exit the agreement without penalty. These contingencies typically last for an agreed-upon number of days and/or until you release them in writing.
Some typical contingencies are:
- Your approval of the seller’s disclosure forms
- Your approval of the results of your inspections and investigations
- Your ability to get financing
So if you have a contingency that is still in effect (neither expired nor released), you can exit the agreement and get your deposit back.
For example, if you are not able to get financing, and your financing contingency is still valid, you may cancel and get your deposit back.
A few related notes:
- The contract requires all parties to act in good faith. So if you were to tell your lender to deny your loan, you would not be acting in good faith and may be subject to losing your deposit.
- The deposit will be held by the escrow company and they can only release it to you (or the seller) with 1) mutual instructions signed by you AND the seller – OR – 2) a court or arbitration order.
Obligatory disclaimer: I am not an attorney, so please confirm this with your favorite legal professional.