Q: What’s the law about the earnest money deposit disbursements when the loan is denied in Maryland?

A: It depends on the contract, whether you signed a financing contingency, whether you as the borrower failed to follow through in good faith with the loan application process, etc. Ordinarily, with a financing contingency, if the buyer fails to qualify for a mortgage per the contract terms, then the buyer is entitled to their EMD. Both parties are required to sign the release of the EMD. If one party refuses, there is a process under the statute whereby the real estate agent who is holding the EMD in escrow sends a certified letter to both parties stating their determination as to who is entitled to the EMD, and advising them that unless one of them objects in writing by return certified letter within 30 days, the money will be released as outlined in the realtor’s letter. If an objection is made, then the realtor either starts an interpleader action joining both parties and paying the EMD into the court’s registry, or either party can sue the other over the issue. These disputes are more common under the GCAAR contract form due to its poorly worded finance contingency.

A: The financial contingency is a contract provision agreed to by the parties. It is normally not part of the main contract, but instead is a separate "addendum" signed and attached to the main contract, that specifically states that the main contract is subject to the terms of the contingency. However, it is common for there to be a reference in the main contract as to whether it is subject to a finance contingency addendum, but that is not required. Once signed, it is effectively up to the buyer whether they want to waive its protections or not. It does not benefit the seller. The only statute I am aware of that deals with the issue is the one I referenced about disputes over the EMD. That statute applies to any disputes over the EMD, not just whether the finance contingency was satisfied or not. Some sellers try to claim that the buyer, by their actions, waived the contingency. As I stated, this usually invalid and pernicious claim seems to arise more frequently under the GCAAR real estate contract form, because of its poorly worded provisions that appear to open the door to creative (but as I stated, invalid) legal arguments. Maryland real estate contracts generally have a mandatory mediation clause, requiring both parties participate before they resort to costly litigation. Info here: https://www2.mediate.com/mdrealtors/index.cfm