Florida Real Estate Broker ExaminationReal Estate Law and RegulationsMedium
A buyer makes an offer on a property and includes a $5,000 earnest money deposit. The seller accepts the offer, but before the closing, the property is destroyed by a hurricane. The sales contract did not specify what would happen in the event of casualty loss before closing. Under Florida law, what is the most likely outcome regarding the earnest money deposit?
- AThe earnest money deposit must be returned to the buyer, and the contract is terminated.
- BThe earnest money deposit will be split equally between the buyer and the seller.
- CThe earnest money deposit will be forfeited to the seller as compensation for the lost opportunity.
- DThe earnest money deposit will be held in escrow until the property can be rebuilt and the sale can proceed.
Show answer & explanationAnswer & explanation
Correct answer: A. The earnest money deposit must be returned to the buyer, and the contract is terminated.
Under the doctrine of equitable conversion and the Uniform Vendor and Purchaser Risk Act (UVPRA), which Florida generally follows, if the property is substantially destroyed before closing and the seller has legal title, the risk of loss remains with the seller. The buyer is then entitled to the return of their deposit.
Why the other options are wrong
- B. There is no legal basis for an equal split of the deposit in this scenario.
- C. Forfeiture would only occur if the buyer breached the contract, which is not the case here.
- D. Rebuilding and proceeding with the sale would require a new agreement or specific contract terms not present here.
Risk of Loss (Real Estate)
Determines which party (buyer or seller) bears the financial responsibility for damage or destruction of property between contract signing and closing.
- Often addressed by contract clauses.
- Florida generally follows the Uniform Vendor and Purchaser Risk Act (UVPRA).
- If substantial destruction occurs before closing, seller typically bears the loss.
- Buyer usually entitled to deposit return if seller bears loss.
Memory trick: If the house is gone, the deposit goes home.