What happens if the earnest money is paid on the buyer’s behalf by someone other than the buyer and the contract terminates?
When earnest money is paid by a third party, it should be managed and disbursed by the holder as if the buyer had deposited it directly. If the buyer legally terminates the contract, the earnest money will be returned to the buyer, not the third party. Should the buyer default on the contract, the earnest money will be paid to the seller as liquidated damages. Any claims the third party has regarding the earnest money should be directed at the buyer and handled like a loan between the buyer and the third party. This should not play any role in the holder’s decision when disbursing the earnest money.
The main purpose of earnest money is to place financial risk on the buyer if they do not fulfill the contract. If a third party who pays the earnest money were to gain special rights to those funds, it would defeat the purpose of earnest money.
To avoid any risk for the third party to make claim to the earnest money, the holder should try to get the third party to sign the GAR Form (F525) entitled Acknowledgement of Person Contributing Earnest Money on Behalf of Buyer. The acknowledgement makes it clear that the third party shall have no further rights to claim the earnest money from Holder and the Holder shall hold, handle and disburse the funds as if it was earnest money paid solely by Buyer and shall only deal the Buyer. It clarifies if the earnest money is to be returned, it will be returned to Buyer and not the party who paid the earnest money.