Down Payment Refund Law in Florida Explained

What is a Down Payment Refund Law?

Down payment refund laws clarify the rules regarding the return of up-front payments for real estate purchases. Down payments are common in real estate contracts, as they help sellers screen buyers while reassuring the former that the latter is committed to the purchase. However, some real estate contracts come with conditions. Buyers may pay up to ensure the contract remains in force until a lender approves financing, until a home inspection clears or until an appraisal is completed . When those contingencies go unmet, down payment refund laws determine when sellers must return the deposit and how much they must return. Down payment refund laws may govern other contractual agreements as well, including deposits for the sale of a business, the leasing of commercial or residential real estate and even for car sales.

Florida Down Payment Laws

In Florida, a down payment is considered as an advance payment or deposit against the total purchase price of the home. While the laws are not universally applied across all transactions and circumstances (e.g. using a down payment to secure your Dream Home, or for investment purposes), Florida does require detailed information be provided by the seller out of concern for the buyer. Statutes 718.202, 719.204, 721.07, and 721.551 require purchases and sales contracts to clearly state whether or not deposits/refunds are required; and if so, the terms of such refunds in the event the transaction does not close.
Florida has a relatively strict "define deposits" rule that applies to all transactions, even those for residences. Section 718.202 governs the developer of residential property obtaining down payments under a contract for purchase of condominium units. The language of the statute in relevant part reads as follows:

(1) A contract for purchase and sale made and executed after July 1, 1985, for residential real property all or any portion of which is intended for occupancy as a residence, must provide, in conspicuous type, a statement setting forth:

(2) A contract for purchase and sale made and executed on or after July 1, 1985, for the purchase or sale of a condominium unit must provide, in conspicuous type, the following:

(a) If all or any part of the purchase price or a deposit is made payable to the developer under the contract, the circumstances under which the contract obligates the purchaser to forfeit the deposit or pay the purchase price….
Whenever a builder offers deals that require the buyer(s) to pay a genuine deposit with limited options for getting a refund, it’s important to know the statutes. In most cases, this is done to prevent sellers from collecting deposits (without any intended refund terms) and then the sale is never completed. Then, they can keep and/or use your deposit (or down payment) and sell the home/unit to someone else (for more money).
One interesting exception to this issue is for nonresidential projects, for example, if you’re buying raw land or commercial land. For such purchases, there is no statutory language that limits the builder’s right to keep a deposit. (for purchases of raw land) Under state law, a buyer (individual) can cancel the transaction up to seven days after they sign the sales contract. If the buyer is a corporation, governmental body, limited liability company, partnership or other legal entity, every agreement has to provide that a contract does not qualify as legally binding until it is signed by the offeree. (agent is in fact, bound by it)
Under 559.952, the statute prohibits sellers (builders, for example) from making representations that the buyer will "materially benefit" from any down payment made at the closing. Furthermore, the buyer must be made aware of how their down payment will used once it is paid. In addition to the rules on the refundability of deposits, there are federal rules that govern this area as well.

When Are Down Payments Reimbursable

Common scenarios where a buyer may be entitled to return of Down Payment

The property was not ready for closing. For example, the seller failed to make the home accessible for inspection or cleaning as required in the contract;
The inspection for the property was not satisfactory and the seller failed to cure the problems before the closing date;
The title to the property could not be conveyed per the contract. For example, there is a lien on the property that has not been paid off;
The buyer and seller mutually agreed in writing to cancel the contract before closing. This is the easiest way to ensure the buyer’s deposit is returned, however, some contracts require the buyer to request this before the closing date;
In many residential real estate contracts, the contingency periods (e.g. for contract of sale contingencies such as inspection, financing, and appraisal) run concurrently. If one or more of these contingencies are not satisfied, or waived within the time period contained in the contract, then the Seller has the right to terminate the contract. The Seller usually makes this termination by sending a written "Notice of Termination" letter to the Buyer and Buyer’s agent. At this point, the Buyer’s right to continue with the contract and the obligation to move forward with the closing are are gone. In this case, the Buyer is entitled to return of its deposit; or
If the buyer could not secure financing within the specified time period in the contract and the buyer did not waive this right to obtain financing. In this situation the buyer has to provide the seller with a notice of termination and that the reason for not going forward is due to its inability to obtain financing. In this way, the contract terminate, and the buyer is entitled to return of deposit.

How to Obtain A Down Payment Return

In the unfortunate scenario where a buyer is unable to complete a real estate closing and the developer would not recognize the buyer’s pre-conceived monetary items, money may be refundable. Unfortunately, the procedures to obtain said refund are not straightforward.
First, one must have a contract that supports his or her ability to receive the down payment disbursement. Contracts typically approved by the Florida Bar in cases where a buyer has reserved the right to terminate its contract include Forms 3, 5A and 6C. Each of these contracts provides a mechanism to full a contractual right to refund an earnest money deposit if needed.
Second , it must be determined whether the sales contract exists to support a right to the refund independent of the particular terms of the contract. Typical clauses found in many sales contracts these days are "time being of the matter" clauses. Of particular importance in this case, however, is whether there is a financing contingency. If there is no financing contingency and the buyer simply cannot afford the property, the contract will probably not entitle the buyer to a down payment refund.
Finally, and less commonly, it depends on how a contract is worded that can result in a buyer receiving a down payment refund despite a failure to timely close.
If there are events such as these that require a party to file a Notice of Commencement, a Notice of Termination must be filed pursuant to Florida Statute 713.132(4) to allow for a release of the Notice of Commencement.

Litigation and Resolution

If a legal dispute arises in Florida, different avenues may be pursued to resolve it. For instance, one of the most practical options may be to simply address your concerns with the party from which you are seeking to obtain your down payment refund. Failure to do so may have a negative impact on the outcome of the dispute.
If direct settlement attempts are unsuccessful, a party may decide to use the services of a neutral third party. As mentioned previously, if your written agreement with the other party includes an arbitration clause, both parties may be required to arbitrate damages before proceeding to court. There are two different types of arbitration, binding and non-binding. Binding arbitration means that the decision by the arbitrator is legally enforceable, similar to a court judgment. Non-Binding results only serve as informal guidance and are not legally enforceable.
If either party refuses to settle the dispute at this stage, they may have to proceed through litigation in the court system. In this phase, an attorney will represent each party in front of a judge or jury. The judge as the decision-maker has the discretion regarding how much weight to provide to the results of voluntary mediation or arbitration. Litigation can be a time-consuming and costly process, making it a less than desirable option for most people. The best option is to try to work out the issues in a direct and amicable manner whenever possible to reach a voluntary settlement.

Hiring A Florida Property Attorney

When addressing the issue of whether or not to return a down payment, the attorney for the Buyer and the attorney for the Seller may dispute who has a right to that down payment. Both may argue legal positions and cite statutes to support their matter of opinion. Often it takes an experienced property lawyer to ascertain whether there is a legal basis to retain the down payment. For that reason, this is not a good idea for the Buyer and Seller to attempt without a property lawyer representing each of their individual interests .
Because this legal area is specialized, it is important to hire a property lawyer experienced in these matters to at least advise their client as to whether or not there is a probability of having their client succeed in a claim for return of their down payment. Only after that analysis will the property lawyer know how well founded the opposing party’s legal position is and what recourse their client can expect should they pursue their claim further.
A property lawyer should have and be prepared to discuss the following prior to representing a Buyer or Seller in connection with a down payment dispute: