Jan92026
Partition Action Q&A Series

Can I get my earnest money back if an heir lawsuit stops the closing on a property I’m under contract to buy? – North Carolina

Short Answer

Often, yes—if the contract makes the seller responsible for delivering marketable title and the heir lawsuit creates a title defect that cannot be cured by the closing date, the buyer typically has a basis to terminate and demand a return of the earnest money deposit under North Carolina contract principles. But the outcome depends heavily on the exact contract language (including any due diligence period, title/closing condition, and cure rights) and on whether the deposit is truly “earnest money” versus other fees paid to third parties. If a notice of lis pendens has been filed in the heir lawsuit, most title companies will not insure the title, which commonly stops closing.

Understanding the Problem

In North Carolina, can a buyer recover an earnest money deposit when a pending heir lawsuit (often a partition or other title/ownership dispute) prevents the transaction from closing on time? The decision point is whether the purchase contract conditions closing on the seller being able to deliver insurable/marketable title by the closing date (or within any contractual “cure” period), and whether the contract allows termination and a deposit refund when that condition fails.

Apply the Law

North Carolina earnest money disputes are usually contract disputes. The key legal issue is whether the seller can convey the quality of title promised in the contract. A pending heir lawsuit can create a “cloud on title,” and if a notice of lis pendens is filed and cross-indexed, it gives constructive notice to later purchasers and typically makes the title uninsurable until the case is resolved. When a contract condition fails (for example, the seller cannot deliver marketable title), the contract often allows termination and directs the escrow agent (often the closing attorney or title company) to return the earnest money to the buyer unless the seller can show the buyer defaulted.

Key Requirements

  • Contract right to a refund: The purchase agreement must allow termination and return of the earnest money when title problems cannot be cured by closing (or by any stated cure period).
  • A real title/ownership defect (not just a delay): The heir lawsuit must materially affect ownership or the ability to deliver insurable/marketable title (for example, competing heir claims, disputed shares, or a pending partition sale).
  • Proper notice and timing: The buyer must follow the contract’s notice requirements and deadlines (including any due diligence end date and any required written termination notice).

What the Statutes Say

Analysis

Apply the Rule to the Facts: Here, earnest money was paid and other deal-related costs were incurred to buy real property through a wholesaler, but the title company reported an heir lawsuit and possible ownership issues right before closing. If that lawsuit creates a title defect that prevents the seller from delivering insurable/marketable title by the contractual closing date (and the contract does not require the buyer to accept that risk), the buyer commonly has grounds to terminate under the contract and demand the earnest money back from escrow. If the contract’s due diligence period has already expired or the contract shifts title-risk to the buyer, the seller may dispute the refund and the escrow agent may hold the funds until the parties sign a release or a court resolves the dispute.

Process & Timing

  1. Who acts: The buyer (or buyer’s attorney). Where: Usually through the closing attorney/title company holding the escrow in North Carolina. What: A written termination notice and a written demand for disbursement of the earnest money under the contract’s escrow instructions. When: Before any contract deadline that cuts off termination rights (often the due diligence end date) and consistent with any notice method required by the contract.
  2. Escrow release step: If both sides agree, the escrow holder typically releases the earnest money by written release. If the seller disputes, the escrow holder may refuse to release without (a) a signed agreement, or (b) a court order.
  3. Confirm the lawsuit status: The next practical step is to confirm whether a lis pendens has been filed and cross-indexed and what relief the heir lawsuit seeks (for example, partition sale, quiet title, or determination of heirs). That information usually drives whether title can be insured and whether closing can realistically occur on time. For more context, see whether it affects the purchase contract and what happens to the contract if a partition case must happen first.

Exceptions & Pitfalls

  • Due diligence vs. earnest money: Many North Carolina contracts treat a due diligence fee differently from earnest money. Even when earnest money is refundable, other payments (including some wholesaler fees or option payments) may not be.
  • Assignment/wholesaler paperwork: If the buyer contracted with an intermediary and not the record owner, the refund path may depend on the assignment terms and who actually holds the deposit (escrow vs. intermediary).
  • “Cure” periods and extensions: Some contracts give the seller time to cure title issues or allow extensions. Terminating too early or without proper notice can trigger a dispute over whether the buyer defaulted.
  • Lis pendens reality: If a lis pendens is filed and cross-indexed, a buyer may be bound by the lawsuit’s outcome under North Carolina law, and a title insurer may decline coverage. That often makes “closing anyway” impractical.
  • Escrow deadlock: If the seller refuses to sign a release, the escrow holder may not disburse. That can force negotiation or litigation to resolve the deposit.

Conclusion

In North Carolina, a buyer can often get earnest money back when an heir lawsuit creates a title defect that prevents the seller from delivering insurable/marketable title by the closing date, as long as the buyer follows the contract’s termination and notice rules. A filed lis pendens commonly stops closing because it clouds title. The most important next step is to send a written termination and escrow disbursement demand consistent with the contract before the due diligence/termination deadline expires.

Talk to a Partition Action Attorney

If a pending heir lawsuit is blocking a closing and an earnest money refund is being disputed, our firm has experienced attorneys who can help explain the partition/title issues, review the contract deadlines, and map out options for getting the deposit released. Call us today at (919) 341-7055.

Disclaimer: This article provides general information about North Carolina law based on the single question stated above. It is not legal advice for your specific situation and does not create an attorney-client relationship. Laws, procedures, and local practice can change and may vary by county. If you have a deadline, act promptly and speak with a licensed North Carolina attorney.

Category: Partition Action Q&A Series

Author: Pierce Law

Pierce Law Group is a North Carolina law firm focused on probate administration, real estate partition matters, and surplus funds claims across North Carolina. We know these situations often come with stress, family dynamics, and time-sensitive decisions—so we prioritize clear communication, steady guidance, and a practical plan from day one. Our goal is to make a complicated process feel manageable, while protecting what matters most to you.