When Does a Texas Contract Become Binding?

Delivery of Earnest Money

I read an interesting post on Facebook the other day. There was a discussion about the delivery of the earnest money being required before a contract becomes binding.

I’m going to argue that a Texas contract becomes binding when it’s signed by all parties, executed, and all parties have received notice.

I base this on several things:

The rules of the Texas Real Estate Commission (TREC) in Paragraph 535.159(I) requires delivery of the earnest money by the close of business on the second business day after execution unless otherwise stated in the contract.

The delivery of earnest money to the escrow officer is a performance issue under the contract. This is clearly spelled out in a Texas 1 to 4 Family Residential Resale Contract. Paragraph 5 reads, “If Buyer fails to deposit the earnest money as required by this contract, Buyer will be in default.” I don’t know how you can be in default if there is no contract. You can only default on a binding contract.

Both TREC Rules and the Texas 1 to 4 Family Residential Resale Contract support the concept that delivery of the earnest money is a performance issue.

Additionally, Texas has no “right to rescind” the contract within a certain number of days. Once signed, executed, and notice is delivered to all parties, it is binding.

Updated to correct TREC Rule sitation

About Tom Branch

Tom Branch has written 597 posts in this blog.

Have you ever just met someone, but felt you like you'd known him for years? That's what most people experience with Tom. He has a knack for making folks feel right at home. After 21 years in the Air Force, loyalty and honesty are the foundation of everything Tom does. In addition to being a Texas Real Estate Broker, Tom is a Certified Distressed Property Expert (CDPE) and a Short Sales & Foreclosure Resource (SFR).