Default

Key Takeaways

• Default is the failure to perform a contract promise once it comes due, and in a purchase and sale agreement it means the same thing as breach.
• A buyer defaults by failing to deposit the earnest money, failing to close, or refusing to perform after the contingencies are satisfied or waived.
• A seller defaults by refusing to deliver marketable title or to close, and the buyer's usual remedies are damages, specific performance, or termination with a refund of the deposit.
• In Washington, a written agreement may make forfeited earnest money the seller's exclusive remedy for a buyer's default, capped at five percent of the purchase price (RCW 64.04.005).

What It Means

Default is what a contract calls it when a party fails to keep a promise that has come due. In a real estate purchase agreement the word covers a buyer who does not deposit the Earnest Money, who does not sign the closing documents, or who walks away after the Contingency deadlines have passed. It equally covers a seller who will not deliver clear title or refuses to close.

Default and Breach describe the same event. Contract forms, promissory notes, and deeds of trust say default because the word attaches to specific consequences, while court opinions and textbooks say breach. When a form declares a party in default, it is almost always pointing at a remedy paragraph that spells out what the other side may do next.

Timing is what decides whether a failure counts. A promise that is not yet due cannot be defaulted on, and a failure the contract itself excuses, such as a financing condition that is not met, is not a default at all. Many agreements go further and require written notice plus a chance to cure before the remedy paragraph can be triggered, so the paperwork sequence matters as much as the missed deadline.

How It Works in Washington

In Washington, what a seller collects from a defaulting buyer usually turns on one clause. RCW 64.04.005 provides that a written provision forfeiting the earnest money deposit or awarding liquidated damages is valid and enforceable as the seller's sole and exclusive remedy when the buyer fails, without legal excuse, to complete the purchase, regardless of whether the seller suffered actual damages, so long as the amount does not exceed five percent of the purchase price. Amounts above that ceiling fall outside the statute and are judged under common law instead. The practical effect is that a seller who signed the forfeiture clause cannot keep the deposit and then also sue for the loss on a cheaper resale.

The buyer's side has no equivalent cap. A buyer facing a seller's default may pursue damages or ask a court for Specific Performance, since each parcel of land is treated as unique. Deadlines still apply either way, because RCW 4.16.040 allows six years to sue on a written contract. Our post on earnest money and contingencies in Washington covers how the forfeiture clause is completed on the standard forms.

Example

Renee agrees to buy a Kent townhouse from Devon for $480,000 with $20,000 earnest money. The agreement includes the forfeiture clause and states that the earnest money is the seller's sole remedy if the buyer defaults. Renee's inspection and financing contingencies are both satisfied by April 3, and closing is set for April 24. On April 22 she tells her broker she has found something she likes better and will not be closing.

Renee is in default. Devon may keep the earnest money, but only up to five percent of the purchase price, which is $24,000 on a $480,000 deal, so the entire $20,000 sits inside the ceiling RCW 64.04.005 allows. That forfeiture is also all Devon gets. When he relists and sells six weeks later at $468,000, the $12,000 shortfall and the extra carrying costs are his to absorb, because the clause he signed made the deposit his exclusive remedy.

Common Mistakes and Exam Traps

• Default and breach name the same failure to perform, so an answer treating default as a lesser or separate legal event is wrong.
• A buyer who exits under a contingency that was properly exercised is not in default, because the contract itself permits that exit.
• In Washington the five percent limit in RCW 64.04.005 is measured against the purchase price, not against the amount of earnest money on deposit.
• Forfeiting earnest money under an exclusive remedy clause bars the seller from also suing for actual damages arising from the same default.