What to Do When an Earnest Money Check Bounced

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If you are in the market to buy a house, more than likely you will have to come up with some money ahead of the sale, called earnest money, to show a seller that you are serious about buying his home. If, for whatever reason your check bounces, there are some crucial steps you should take to avoid losing out on the opportunity to buy the home.

Overdraft Protection

If your earnest money check bounces, it will be treated by the bank like any other check. If you have overdraft protection, you may be okay. Overdraft protection means you’ve established what is essentially a line of credit with the bank that will cover any checks that post to your account if you don’t have sufficient funds.

Contact With Bank

If your earnest money check bounces, and you don’t have overdraft protection, one of the first things you should do is contact the bank. That’s because there is a chance that the bank may cover the check. Many banks offer what is called courtesy bounced check protection. Account holders who are extended this courtesy will have the peace of mind in knowing that the bank will pay the individual or merchant to whom you wrote the check. In the case of an earnest money check, that is likely the seller or her agent.

Insufficient Funds

If you are a habitual bad check writer, the odds are against you when it comes to the bank covering the check for you. In these cases, the bank will return the check unpaid to the payee and mark it “insufficient funds.” This can spell disaster for you because the seller may be hesitant to sell his home to a person who can’t come up with the earnest money. The amount of the earnest money is usually no more than 2 percent of the asking price of the house. If you can’t come up with that, the seller may wonder how you will be able to come up with a down payment, which can be at least 5 percent and could be up to 20 percent or more.

Contact With Seller

To head off any negative thoughts the seller may have about you if your check is returned, stamped NSF, you should consider contacting him. It’s important that you are honest. Don’t come up with some far-fetched excuse as to why you wrote a check that you did not have the funds in your account to cover. While the bounced check snafu is embarrassing, the seller may not sum up your fiscal responsibility solely on the occurrence. However, if you lie about why you bounced the check, you will likely raise red flags, and you may be seen as deceptive or even as a person running a scam. Offer to resubmit your earnest money in the form of a cashier's check, money order or cash.

If the seller decides it’s okay to take another personal check from you, you may have to jump through a few hurdles. The seller may request a bank statement just before the date of the check.

Furthermore, before closing, the seller may require you to prove that your down payment check has actually cleared the bank.


About the Author

Valerie Fox is a business reporter and editor specializing in consumer affairs and debt management. She has been a writer since 1994, also covering politics, housing and the stock and bond markets. Fox has written for Cox, Gannett and Knight-Ridder newspapers. She holds a Bachelor of Science in economics from the University of Florida.

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