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disputeSo what is a mutual release and what does it mean to you the seller?  First let me explain how this document came about.  There is an earnest money deposit given by the buyer and held by the buyers real estate company.  It is given when a purchase agreement is signed.  When the contract falls apart there were sometimes disputes on who got to keep the earnest money deposit.  The buyer or the seller?  Over the years brokerage firms like Real Estate One, Coldwell Banker, or Century 21 would get sued over giving the earnest deposit to one party when the other disputed it.

So Michigan real estate firms came up with what they thought was a good solution to the issue so they would not get sued anymore.  There is now a document called the mutual release whenever a purchase agreement does not go to closing.  If the deal falls apart because of inspection, mortgage, or any issue the buyer and seller must sign and agree on who gets the earnest money.

BOTH PARTIES MUST AGREE AND SIGN the mutual release.  Otherwise the earnest money deposit cannot be released.  However if it is something simple like the inspection failing or a mortgage denial letter most real estate brokerage firms will release the money after a short period to the buyer because there is language in the contract that voids the contract and specifically states the money goes back to the buyer.  So the you the seller really cannot hold giving the buyer their earnest money up even if you refuse to sign.

Mutual release

The grey area and the one that causes problems is when the buyers doesn't perform or is way past the closing deadline because of mortgage issues.  Say the buyer has asked for 3 contract extensions and you are at 75 days.  Then there is an issue.  The buyer may just get cold feet.  Both parties have to agree on who gets the money.  They have to sign too.  That is where it gets tricky because the contract is still in force until that is signed.

This is where the broker and company lawyer have to make a decision on whether you can put your home back on the market without a mutual release.  Many times it is in your best interest to sign and get your home back on the market.  It's rare now days to see the seller keep the earnest money deposit unless the buyer just walks away from the deal for no reason.