Earnest Money in Tennessee: Who Holds It and When It Is at Risk
By Mark Jost, NMLS #150914 · Published
When you make an offer on a home, you often put down a good-faith deposit. That deposit is called earnest money. It tells the seller you are serious. Let me explain how it works so there are no surprises.
What is earnest money?
Earnest money is cash you put down after the seller accepts your offer. If the sale goes through, the money goes toward you at closing, usually toward your down payment or closing costs. It is not an extra fee. It is your own money, held safely until the deal is done.
How much to put down, and when, is set in your purchase contract. Your real estate agent will go over those numbers with you before you sign.
Who holds the money?
In Tennessee, a real estate broker who takes in this kind of money must keep it in a separate escrow or trustee account. It can't be mixed with the broker's own money. The contract must also say who is holding the money and what has to happen before it is paid out. Read that part of your contract. It tells you the rules for your deal.
Brokers must also keep records of each deposit, including who paid it, the date it went in, and the date it came out. They must keep those records for at least three years.
When could you lose it?
The contract decides. That is why the details matter. Most contracts list the times you are allowed to back out, such as after an inspection or if the loan is not approved by a set date. If you back out for a reason the contract allows, you can usually ask for your money back. If you back out for a reason the contract does not allow, the seller may claim the money.
Deadlines are the big thing. Write them on your calendar the day you sign. Common ones are the inspection date, the date to get your loan approved, and the closing date. Missing one can change what the contract lets you do.
What if you and the seller disagree?
Sometimes the buyer and seller each say the money is theirs. A broker can't just pick a side. Under Tennessee Real Estate Commission rules, when someone asks in writing for the money to be paid out, the broker must pay it out, file it with a court, or hand it to an attorney to file it with a court. That has to happen within 21 days of the written request, unless there is a strong reason for more time. When the money goes to court, a judge decides who gets it. This is called an interpleader.
That is slow and stressful for everyone. The best way to avoid it is to know your contract and keep your agent in the loop early if a problem comes up.
How earnest money fits with your loan
Your lender will want to see where your down payment and closing money came from. Keep a copy of your earnest money receipt and the bank record showing the money leaving your account. That makes it easy for me to show the lender where the money went. Please don't move large amounts of cash around without telling me first.
My advice
Ask your agent three things before you sign: How much is the deposit? Who holds it? What are the exact dates I could lose it? If you are buying in Nashville, Franklin, Brentwood, or anywhere in Middle Tennessee, call me. I can help you plan the cash you need for the deposit, the down payment, and closing, with no cost to ask.
Sources
- Tennessee Real Estate Commission Rule 1260-02-.09, Managing Escrow or Trustee Accounts
- Tennessee Department of Commerce and Insurance: Real Estate FAQs (deposits and earnest money)
- Tennessee Code 16-15-731, Actions in the nature of interpleader
This article is general information, not a loan offer or legal advice. Every loan depends on credit, income, and property review. Mark Jost, NMLS #150914. Heathrow Mortgage, Company NMLS #1849599. Equal Housing Opportunity.