If the buyer defaults on a transaction and the seller decides to sue for actual damages, what happens to the earnest money?

In the context of a real estate transaction, earnest money is a deposit made by the buyer to demonstrate their commitment to purchasing the property. If the buyer defaults and the seller chooses to pursue legal action for actual damages, the treatment of the earnest money depends on the outcome of that suit.

When the seller decides to sue for actual damages, it indicates that they are seeking compensation for losses incurred due to the buyer's default. In this scenario, it is possible that the seller may not automatically retain the earnest money, especially if the damages do not exceed the amount of the earnest money deposit. The seller's claim for damages must be substantiated, and the court might determine that the buyer is entitled to a refund of the earnest money if the damages are not proven or are less than the earnest money amount.

Thus, in some cases, the buyer can be entitled to a refund of the earnest money deposit, especially if the seller's damages are not established or if the transaction cancellation is justified. This understanding emphasizes the importance of legal recourse and how earnest money is often handled in the case of disputes.