Contracts
In a Texas real estate transaction, when a buyer defaults and the seller elects to terminate the contract and retain the earnest money, this is generally treated as:
APunitive damages against the buyer
BLiquidated damages—a pre-agreed remedy for the breach✓ Correct
CAn unconstitutional penalty
DA TREC-mandated remedy only
Explanation
TREC contracts treat the seller's retention of earnest money upon buyer default as liquidated damages—a pre-agreed, reasonable estimate of the seller's damages for the breach. This is an alternative to the seller suing for actual damages or specific performance. The seller must elect this remedy and follow proper procedures.
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