Earnest Money, a Late Inspection, and a Contingency Waiver

The earnest money is due within three business days after acceptance. Acceptance was Friday, April 4, so the three business days are Monday April 7, Tuesday April 8, and Wednesday April 9; deposit is due by the end of April 9. The 10-day inspection period runs from acceptance, so it ends Monday, April 14. Lin's email was sent that day, but the contract requires a written notice in the prescribed form (an inspection objection or a notice of items disapproved) delivered to the seller or the seller's agent. A bare email stating an intent to renegotiate is not the required notice and does not invoke the remedy process. Whether the email is effective turns on delivery and form: if the contract permits email delivery and the email substantially identifies the disapproved item and the remedy sought, a tribunal might treat it as notice, but the safer analysis is that Lin's failure to use the required form and her framing of the message as a demand rather than a disapproval notice weakens her position. If the inspection period expired without a proper objection, Lin is deemed to have approved the inspection and cannot terminate on that basis.

Earnest money is not automatically refundable. If Lin terminates outside a valid contingency, she is in breach and the seller may claim the deposit as liquidated damages if the contract so provides and the amount is a reasonable estimate of loss, or the seller may pursue actual damages. The escrow company will not release the funds unilaterally; it typically requires a signed release from both parties or a court order, so the money stays frozen while the dispute is unresolved. Lin's best arguments are that her April 14 email was effective notice, that the seller's refusal to cure was a breach, or that the loan contingency independently excuses performance. The seller's best argument is that the inspection period lapsed without a proper objection and that Lin's loan contingency required her to apply diligently and provide a timely loan-status notice. The parties should first attempt mediation if the contract requires it before arbitration or litigation; if the seller proves breach, Lin risks losing the deposit plus costs.

The loan contingency is written at 6.5% or better, so a 6.75% offer is outside the contingency and ordinarily gives Lin a basis to cancel and recover the deposit, provided she has complied with the contract's loan-processing duties: applying promptly, supplying documents, and giving any required loan-status notices. She should not simply walk away. She must deliver written notice of the loan contingency failure within the contract's timeframe and provide the lender's written denial or terms letter if the contract requires documentation. If Lin could obtain 6.5% by paying points or using a different program, the seller may argue she failed to mitigate or acted in bad faith. Lin should also consider whether she wants the property enough to accept 6.75%; if she waives the contingency in writing, she proceeds at the higher rate and the deposit is at risk if she later fails to close. The agent should document all lender communications and calendar the loan contingency deadline, since missing it can waive the protection.