Michigan’s earnest money deposit law requires a real estate broker to place your deposit into a separate custodial trust or escrow account within two banking days after learning that all parties have accepted the purchase offer. The rule comes from MCL 339.2512, and it sits alongside contingency protections in your purchase agreement that determine when the money comes back to you and when the seller gets to keep it.1Michigan Legislature. Michigan Compiled Laws 339.2512 – Prohibited Conduct; Penalties Deposits typically run 1% to 3% of the purchase price and are credited to the buyer at closing if the deal goes through.
How Your Deposit Must Be Held
Earnest money in Michigan is not the seller’s money and not the broker’s money while a transaction is pending. It is held by a neutral party, usually the listing broker, the buyer’s broker, or a title company, until the deal closes or terminates.
The Two-Banking-Day Rule
Once the broker learns that all parties have accepted the purchase offer, the broker has no more than two banking days to deposit your earnest money into a separate custodial trust or escrow account. The account must be held at a bank, savings and loan association, credit union, or recognized depository. A salesperson who receives your deposit cannot hold onto it — the funds must be turned over immediately to the supervising broker.1Michigan Legislature. Michigan Compiled Laws 339.2512 – Prohibited Conduct; Penalties
No Commingling, No Interest
Brokers are prohibited from mixing your deposit with their own business or personal funds. The only exception is that a broker may keep up to $2,000 of their own money in each trust account to cover bank service charges or minimum balance requirements.1Michigan Legislature. Michigan Compiled Laws 339.2512 – Prohibited Conduct; Penalties
Michigan’s administrative rules require the account to be a non-interest-bearing demand account. Your deposit does not earn interest while it sits in escrow, and the broker cannot profit from holding it. Checks written on the account must be signed by a broker or associate broker.2Cornell Law Institute. Michigan Administrative Code R 339.22313 – Trust or Escrow Accounts
Records You Can Inspect Behind
Every dollar in and out of an escrow account must be documented. Records must show the date each deposit was received, who paid it, the amount and payment method, the deposit date, and the details of any disbursement, including payee, date, check number, and purpose. Records must also identify which transaction and which party each deposit belongs to, and they must be kept for at least three years. The Michigan Department of Licensing and Regulatory Affairs can inspect them at any time.2Cornell Law Institute. Michigan Administrative Code R 339.22313 – Trust or Escrow Accounts
When You Can Get Your Deposit Back
The escrow rules protect your money from being lost or misused while it sits with the broker. What determines whether you get it back is the contingency language in your purchase agreement. A contingency is a condition that must be met before the sale can go forward; if it isn’t, you can cancel and recover the deposit.
The contingencies most Michigan buyers rely on:
- Financing contingency. If you can’t secure mortgage approval by a specified date despite a good-faith effort, you can cancel and get the deposit back.
- Inspection contingency. If an inspection uncovers serious defects and the seller won’t negotiate repairs or a price reduction, you can terminate the agreement.
- Appraisal contingency. If the property appraises below the purchase price and the seller won’t bridge the gap, you aren’t forced to overpay.
- Title contingency. If a title search reveals liens, encumbrances, or ownership disputes that can’t be cleared, the deal can be cancelled.
The exact wording of each contingency controls whether it actually protects you. A narrowly drafted inspection contingency may not let you walk away over a modest issue, and deadlines inside each contingency are usually strict. Missing a contingency deadline by a single day can cost you the right to a refund even if your underlying concern was legitimate. Have an attorney or an experienced agent look at the contingency language before you sign.
When the Seller Keeps the Deposit
If you back out without a valid contingency and without another legal excuse, the seller can typically keep your deposit as liquidated damages. Most Michigan purchase agreements include a liquidated damages clause that says so directly. Because there is no state-mandated cap on the deposit amount, you should not put up more than you are willing to lose in that scenario.
When Both Sides Claim the Money
Disputes usually surface when a deal collapses and each party believes the deposit belongs to them. The buyer says a contingency wasn’t met; the seller says the buyer waived it or missed a deadline. The broker cannot release the funds to either side without both parties’ written agreement or a court order, so the money can sit frozen in escrow for months.
Most Michigan purchase agreements include a mediation or arbitration clause requiring the parties to try to resolve the dispute outside of court first. If mediation fails, the fight moves to arbitration or circuit court, where the decision turns on the purchase agreement itself: the contract language, the sequence of events, and whether each side met its obligations on time. The details that felt tedious at signing become the whole case.
Protecting Your Deposit From Wire Fraud
Before you worry about disputes, worry about the wire. Criminals intercept email between buyers, agents, and title companies and send spoofed wiring instructions that route the deposit to fraudulent accounts. The FBI’s Internet Crime Complaint Center reported over $145 million in losses from real estate-related internet crime in 2023.3Federal Bureau of Investigation. 2023 Internet Crime Report Once the money lands in a fraudulent account, recovery is extremely difficult and often impossible.
Never trust wire instructions received by email without verifying them by phone. Call your title company or closing agent at a number you looked up independently, not a number contained in the email, and confirm every detail of the wiring instructions before sending anything. If the instructions change at the last minute, verify again. The few minutes this takes can save your entire deposit.
What Happens If a Broker Mishandles Your Money
MCL 339.2512 lists failures to account for other people’s money and failures to follow the escrow account rules as prohibited conduct, and directs violators to the penalties in Article 6 of the Occupational Code.1Michigan Legislature. Michigan Compiled Laws 339.2512 – Prohibited Conduct; Penalties Under MCL 339.604, a licensee who commits fraud, deceit, or dishonesty, violates a rule of conduct, or demonstrates gross negligence or incompetence faces the penalties in Section 602, which can include fines, license suspension, license revocation, or probation.4Michigan Legislature. Michigan Compiled Laws 339.604
Commingling, missing the two-banking-day deadline, and sloppy record-keeping can each independently trigger a LARA investigation. Where a broker actually misappropriates client funds, criminal charges for embezzlement or fraud may follow. Michigan law bars the department from issuing a broker’s license to anyone previously convicted of embezzlement or misappropriation of funds, which sets the tone for how the state treats these violations.
If you suspect your deposit has been mishandled — held outside a trust account, released without your consent, or unaccounted for — a written complaint to LARA opens the door to the investigative and disciplinary process described above.