Most earnest money never becomes a problem. The deal closes, the deposit gets credited to the buyer, and nobody thinks about it again. The trouble starts when a deal falls apart and the buyer and seller disagree about who gets the money.
Here's how earnest money works on a Colorado contract, who's actually holding it, and what happens when one side won't sign the release.
Section numbers below refer to the current Colorado Real Estate Commission Contract to Buy and Sell Real Estate (Residential), mandatory for use since January 1, 2026. Always check the version on your file.
Who holds the earnest money?
Whoever is named in the contract. Section 4.3 has a blank for the Earnest Money Holder, and that's usually either the listing brokerage or the title company. Either way, the money sits in a trust account on behalf of both the buyer and the seller. The holder doesn't work for either side, and it can't pick a winner.
A few other things Section 4.3 covers:
- When it's due. The buyer tenders earnest money with the contract unless the parties agree to an Alternative Earnest Money Deadline. Missing that deadline is a default, because time is of the essence for every date in the contract (Section 20).
- It moves to closing. The parties authorize the holder to deliver the earnest money to the closing company at or before closing.
- Interest. If the holder participates in an affordable-housing fund program, any interest earned goes to that fund, not to the buyer or seller.
If the title company is holding it, Chicago Title's escrow team receipts the deposit and the good funds rules apply. The money has to actually clear before it can go back out.
When does the buyer get it back?
If the buyer has a right to terminate and sends the Notice to Terminate on time, the buyer is entitled to the earnest money back (Sections 4.3.2 and 24.2). That covers the common exits: inspection, appraisal, loan terms, title, HOA documents, insurability, and the other deadlines in Section 3.
Two details matter a lot here:
- Termination is effective when the seller receives the notice, as long as it arrives on or before the deadline. A notice delivered after the deadline doesn't terminate anything (Section 24.1).
- The New Loan Availability deadline is the big one. If the seller isn't in default and doesn't timely receive the buyer's Notice to Terminate by that deadline, the contract says the earnest money becomes nonrefundable, with limited exceptions like appraisal, title, and survey (Section 5.2.2).
FHA and VA buyers have extra protection. The FHA and VA clauses in Section 6.2 say the buyer won't forfeit earnest money if the property doesn't appraise at the required value.
When does the seller get it?
When the buyer defaults: misses a payment deadline, doesn't close, or walks away after the termination deadlines have passed.
What the seller can do depends on one checkbox in Section 20.1:
| Section 20.1 setup | What the seller gets |
|---|---|
| Liquidated Damages (the default if the 20.1.1 box isn't checked) | The earnest money is the seller's only remedy. The seller keeps it and waives specific performance and additional damages. |
| Specific Performance (box in 20.1.1 checked) | The seller can keep the earnest money and pursue additional damages, or treat the contract as still in effect and sue to force the sale, for damages, or both. |
Most residential contracts leave the default in place, so earnest money is usually the ceiling on what a seller can recover from a buyer who walks. That's one reason the earnest money amount is worth negotiating, not just filling in.
If the seller defaults, Section 20.2 lets the buyer cancel and get the earnest money back plus damages, or keep the contract alive and pursue specific performance, damages, or both.
The release: three days, or you're in default
Getting earnest money out of a trust account takes written mutual instructions, usually the Commission's Earnest Money Release form. The contract puts a clock on it:
- After a proper termination, the seller must sign and return the release within three days of receiving it (Section 4.3.2).
- When the seller is entitled to the money, the buyer has the same three days.
- A party who doesn't sign on time is in default, unless they're actually entitled to the money because of the other side's default (Sections 4.3.2.1 and 4.3.2.2).
Once the holder has the signed release, the brokerage acknowledgments in the contract and the Closing Instructions both call for release within five days, as long as the deposit has cleared.
One thing brokerages get wrong: the Real Estate Commission's position is that if one party has already authorized the release to the other side in writing, a signature from the other party isn't required. The Commission also says brokerages shouldn't sit on undisputed money just because one release signature is missing.
What happens in an actual dispute
If the buyer and seller genuinely disagree, Section 23 says the holder isn't required to release the money to anyone. It's not the holder's call who's right. Under the contract (and the matching language in the Closing Instructions when the title company is holding it), the holder has three options:
- Wait. Hold the money until the buyer and seller resolve it or a court rules.
- Interplead. File the money into court and let the judge decide. The holder can recover its court costs and reasonable attorney fees for doing that, which come out of the deposit.
- Send the 120-day notice. The holder notifies both parties that unless it receives a copy of a filed lawsuit between them, with a case number, within 120 days, it's authorized to return the earnest money to the buyer.
Option 3 is the one that surprises sellers. If the seller believes the buyer defaulted but never files suit, the money can end up back with the buyer.
Before anyone gets to court, Section 22 requires the parties to try mediation in good faith, splitting the mediator's cost. That obligation ends if the dispute isn't resolved within 30 days of the written request. And Section 21 says the prevailing party in arbitration or litigation gets reasonable costs and attorney fees, which is worth remembering before fighting over a small deposit.
A quick example
A hypothetical $450,000 contract with $10,000 earnest money held at title:
| What happened | Who's likely entitled |
|---|---|
| Buyer terminates on inspection before the Inspection Termination Deadline | Buyer. Seller has three days to sign the release. |
| Buyer's loan falls through, but the Notice to Terminate arrives the day after the New Loan Availability Deadline | Likely seller. The late notice doesn't terminate the contract. |
| VA appraisal comes in under the price and buyer won't proceed | Buyer, under the VA clause. |
| Buyer gets cold feet a week before closing with all deadlines passed | Seller, as liquidated damages (unless the 20.1.1 box was checked). |
| Seller can't deliver clear title | Buyer, plus a possible claim for damages. |
These are simplified. Real files have amendments, counterproposals, and notices that change the answer. If both sides claim the money, it stays put until they agree, a court rules, or the 120-day notice runs out.
How agents avoid earnest money fights
- Calendar every termination deadline the day the contract is signed, and confirm when notices are actually received, not just sent
- Pay close attention to the New Loan Availability deadline. Stay in touch with the lender well before it.
- Send the Earnest Money Release with the Notice to Terminate so the three-day clock starts right away
- Check whether the 20.1.1 Specific Performance box is checked. Know your seller's remedy before you need it.
- Get the deposit in by the deadline. A late earnest money deposit is a default on its own.
- When the other side won't sign, put the request in writing and keep it. If it turns into a dispute, the timeline matters.
- Don't give legal advice on who's right. Tell your client to talk to a real estate attorney.
Quick answers
Who holds earnest money in Colorado?
Whoever is named as the Earnest Money Holder in Section 4.3 of the contract, usually the listing brokerage or the title company. It's held in a trust account on behalf of both the buyer and the seller.
How long does the seller have to sign the earnest money release in Colorado?
Under the current Colorado contract, three days after receiving the release form, if the buyer properly terminated. A seller who doesn't sign on time is in default unless the seller is entitled to the money because the buyer defaulted.
Can the title company decide who gets the earnest money?
No. The holder releases the money on written mutual instructions from both parties. If they disagree, the holder can wait, file the money into court, or give a 120-day notice that it will return the money to the buyer unless it receives a copy of a lawsuit between the buyer and seller.
What is the 120-day earnest money notice in Colorado?
It's an option the contract gives the holder in a dispute. The holder notifies both parties that unless it receives a filed lawsuit with a case number within 120 days, it's authorized to return the earnest money to the buyer.
Can a Colorado seller sue a buyer for more than the earnest money?
Only if the Specific Performance box in Section 20.1.1 is checked. If it isn't, liquidated damages applies, and the earnest money is the seller's only remedy for a buyer default (aside from things like the inspection damage indemnity and attorney fees).
Does a buyer lose earnest money if the loan falls through?
Not if the buyer delivers a Notice to Terminate that the seller receives by the New Loan Availability Deadline. If the notice is late and the seller isn't in default, the contract says the earnest money becomes nonrefundable, with limited exceptions.
Deal falling apart?
If the earnest money is at Chicago Title, call me early. I can tell you where the deposit stands and what the escrow team needs to release it.
This article is general educational information about how earnest money is commonly handled under the Colorado Real Estate Commission's residential contract. It isn't legal advice, and the title company can't decide disputes between buyers and sellers. Contract forms change, and every file has its own amendments and notices, so talk to a Colorado real estate attorney about any specific dispute.