A title and escrow company typically cashes the check for earnest money when escrow opens. Sometimes a buyer gives an earnest check to a real estate agent, made out to a title company, when making a purchase offer on real estate. The real estate agent might hold the check until the seller accepts the offer and then give the check to the title company.
Earnest money is funds the buyer offers to the seller to show good faith when making a real estate purchase offer. The amount of the actual earnest money varies according to what the seller is willing to accept. Earnest money typically goes toward the purchase price, yet if the buyer cancels the purchase offer, she risks losing the earnest money to the seller. The terms of the purchase contract dictate when the buyer loses the earnest deposit should the sale fail to close. For example, if a purchase contract is contingent on the property appraising for a certain amount and fails to appraise, the buyer normally gets her earnest deposit back should she cancel on the grounds of the low appraisal amount.
Title and Escrow Company
A real estate transaction does not necessarily involve a title and escrow company, such as some sales involving quitclaim deeds. The title and escrow entities are not necessarily the same. The title entity's primary job involves investigating the chain of title to determine what rights the seller has in regard to conveying title. The escrow entity holds the funds in an escrow account as a third party for the buyer and seller, while the escrow officer enforces the terms of the purchase contract, such as ordering title insurance, paying off liens and recording the title transfer. Some companies perform both title and escrow services.
Real estate laws vary by state. In some states, attorneys routinely participate in real estate transactions. An attorney might be involved in the title search process or hold an earnest fund in an escrow account. In those situations, cashing of the check depends on the individual circumstance.
While the title and escrow company typically cashes the earnest deposit check after the seller accepts the buyer's offer and escrow opens, that is not always the case. For example, if a real estate agent prematurely opens escrow, believing he has an accepted offer, the title and escrow company might deposit the check in the escrow account, which is the same thing as cashing the check. This might happen if the buyer's agent opens escrow after the seller's agent tells him the seller accepted the offer, and before the buyer's agent receives the signed contract. In those circumstances, there is always the possibility that the seller doesn't deliver a signed contract; therefore, the buyer and seller have no agreement.