Contracts
What is 'earnest money forfeiture' and under what circumstances does it occur in Hawaii?
AA. The automatic return of earnest money to the buyer when a contingency fails
BB. The seller's right to retain the buyer's earnest money when the buyer defaults on the purchase contract without a legal excuse✓ Correct
CC. The title company's retention of earnest money for processing fees
DD. The buyer's right to retain the seller's earnest money equivalent if the seller defaults
Explanation
Earnest money forfeiture occurs when a buyer defaults on the purchase contract without contractual justification (such as an unsatisfied contingency). The seller may retain the earnest money as liquidated damages if the contract contains such a provision.
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Key Terms to Know
Earnest Money
A deposit made by the buyer when submitting a purchase offer, demonstrating serious intent and serving as consideration for the contract.
ContingencyA condition in a purchase contract that must be satisfied before the sale can proceed to closing.
Purchase AgreementA legally binding contract between a buyer and seller that outlines the terms and conditions of a real estate sale.
Option ContractA contract giving the buyer the right, but not the obligation, to purchase a property at a specified price within a specified time period.
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