Q&A: Mutual Release

Q. It seems to me that the seller of a property is protected from the buyer changing their mind and not moving forward with the transaction because of the earnest money which has been put down on the house. What protects the buyer from buyer remorse?

A. Contracts are legally binding

Terms of the contract cover whether or not the buyer can walk away due to inspection issues or if they fail to get mortgage approval or if the property does not appraise for a figure high enough to satisfy the buyer’s lender.

Earnest money as a deterrent

While the earnest money may be a deterrent to the buyer wanting to walk away from a transaction, the earnest money is being held in escrow and will not be released to either party unless both parties agree OR a court has made a determination of which party is entitled to the earnest money. So… in effect, both buyer and seller are protected unless and until they enter into a mutual release.

Multiple Purpose document

The mutual release is a wonderful, multi-purpose document. Its primary purpose is to get people out of a contractual agreement with the assurance that all parties are satisfied (enough) and will not bring any kind of legal action against any other party to the contract. We will all go home, forget we were ever involved in a contract with you and we will NOT call our attorneys next week (or ever).

Many real estate firms will use two specific mutual release forms; one tailored to things associated with the listing and one tailored to the purchase side of the transaction. It is also possible to use a GENERIC mutual release which has boxes so the appropriate reason can be selected from a list or a space for the specific reason in this case to be printed in.

Common Mutual Release Scenarios

The mutual release in real estate may be used to end the agreement when:

a. Inspection issues cannot be resolved, the transaction is stalled, agreement cannot be reached and closing is no longer desired. This is a very common occurrence in real estate transactions.

Form—Mutual release to the Purchase agreement

b. Seller needs to withdraw the property, for good reason, such as a family emergency.

Form: Mutual release to the Listing agreement

c. The buyer’s financing has fallen through, therefore, they are unable to close

Form: Mutual release to the Purchase agreement

A declaration of what happens to the earnest money would be stipulated in the mutual release.

A mutual release is a protection for all parties from future liability. I strongly recommend that you make every effort to reach a compromise and then translate that agreement into a mutual release—Signed by all parties to the transaction.

Good luck on dealing with the issues which are currently more pressing!

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