What can a seller do if buyer absconds after paying token money for property?

Real estate investments require careful consideration. After completing due diligence and legal checks, an interested buyer must pay token money to the seller to ensure that the seller does not approach any other buyer. However, not all real estate transactions end positively, and a seller may face an unforeseen event like in the case of V Narayanan. 

Narayanan, a resident of Vashi was all set to sell his 2BHK that he co-owned with his sister. He had listed the property on an online portal and after a few meetings with the buyer – the sale of the property was agreed on. Narayanan took Rs 1 lakh as token money for the deal for which the agreement of sale was to be signed after 20 days.  When Narayanan tried to get in touch with the buyer a day before signing of the agreement, he didn’t receive any response and the buyer simply blocked him.  

There have been numerous instances where a buyer absconds after making this payment, leaving the seller shocked and facing financial and legal uncertainty. In this guide, we focus on what a seller can do if they ever find themselves in a situation where the buyer has ghosted them.

What is token money?

Token money is like an initial deposit that the buyer pays to the seller right at the beginning to reiterate that he is interested in buying the property. This initial agreement is around 1-5% of the value of the property and is legal to taken. While this may or may not be included in the agreement of sale deed and sale deed based on the local real estate rules, generally for a legal holding, the token money transaction is notarised and transferred to a third-party escrow account until the deal is completed. Note that once a token money has been paid, if the buyer backs out of the deal it is fortified. It is refunded only in case of the seller backing out of the deal. 

What factors should be considered before seller receives token money?

Follow the legal requirement

Understand the local rules regarding token money and charge a token money according to market standards to avoid any kind of argument. 

Token money to be taken

While there is no particular threshold to decide token money, it’s a good idea to take the token money that is according to market rates. Token money can also depend on factors such as property value, financial condition of the buyer etc.

Receipt of token money taken 

Once a seller receives the token money, he should give receipt of this to the buyer and keep a copy for himself. This is important in case of any litigation, calculating the final property cost etc. 

Conditions and clauses

While notarising the agreement for token money, there should be clauses included in them that will mention details about situations with dates regarding when the token money can be refunded and when a seller can retain it.  

Steps a seller should take if buyer absconds after paying token money

The seller is in a problematic situation if he has taken the token money and the buyer absconds. Since the token money has been taken, the property is booked. However, in the absence of the buyer, how can the seller go ahead with the sale? Here are some possible solutions:

• Review the notarised document

When the seller receives confirmation that the buyer has withdrawn from the deal, he must first read the notarised document and understand the legalities mentioned regarding breach of contract. In most cases, the seller is allowed to keep part or all of the token money (depending on how soon or late he was informed) as compensation for the loss incurred while the property was off the market.

• Legal action

In case the buyer absconds for fraudulent reasons, the seller can file a case against the absconding buyer and demand compensation for the financial loss, the lost opportunities to sell and the money spent on paperwork.

• Seek clarification

There may be a genuine reason that the buyer may not be able to proceed with the property buying activity. In such cases, a seller can set up a meeting with the buyer, understand the reason and see what best he can help the buyer with. If the seller sees that the transaction cannot happen, then he may decide on if he wants to retain the token money partly or refund it entirely to the buyer (depending on case to case basis)

• List the property for sale again

With the buyer absconding and the property yet to be sold, the seller should not waste much time and start with preparations of selling the property all over again by listing it again. Note that this window of recovery should be very small so that the loss of the property being off the market is absorbed and the seller doesn’t incur much losses. 

Precautions a seller should take before taking token money from the buyer

• Screening the buyer

A seller should check the buyer’s background, his intent to proceed with the property purchase and his financial strength before proceeding with the deal so that no untoward incident is experienced.  

• Cancellation deed

A seller should sign a cancellation deed with the buyer at the time of receiving the token money, which mentions the terms to follow if the deal does not happen. The deed should mention the duration for which the seller should wait for the buyer, post which the deal gets cancelled. It should also highlight that the seller can retain the token money as compensatory money and explore other sale options, if the deal doesn’t work because of the buyer. 

• Escrow account

Having an escrow account where the token money will be transferred is added security. With this the buyer will also trust that the money is held by a third party and thus the token money he is paying won’t be misused. 

Housing.com POV

Token money is paid to hold a property. In case a buyer or seller is not ready to go ahead with the transaction after paying the token money, dissolve the agreement based on the previously agreed terms and conditions. When all else fails, the seller can take legal recourse to either complete the deal or demand compensation.

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