You can borrow earnest money on a business-purpose deal, but the loan is only as safe as the paperwork around the deposit. You need a refund clause that lets the buyer redirect the money, title told in advance, a pre-signed release, a written loan agreement, and wire instructions verified by phone.
Educational only. This explains how these situations generally work. It is not legal, tax or financial advice, and the rules differ by state — talk to an attorney or CPA about your own situation before you act on any of it.
An ordinary deposit has two parties who care about it: buyer and seller. A borrowed deposit has three, and the third one — the lender — is not on the purchase contract. Everything below exists to close that gap so the money finds its way back to whoever actually put it up.
The walkthrough most people learn this from is Pace Morby’s Contracts for Earnest Money Deposits | Gator Method (June 2023), where he calls the title officer live on a subject-to deal in Texas with a $5,000 borrowed deposit. The steps below follow that sequence, with the gaps filled in.
Educational only — talk to a real estate attorney in your state before you rely on this.
The purchase contract should say, in substance, that if the buyer cancels during the inspection period, the seller irrevocably instructs escrow to return the deposit to the buyer or to any person or entity the buyer designates, and waives any right to object to that release.
Two parts do the work. “Or any person or entity designated by the buyer” lets the refund go straight to the lender instead of passing through the borrower’s account. The waiver gives escrow a written reason to release without a fight. Without both, the lender’s money depends on the borrower’s honesty and the seller’s mood.
Ask to see the signed contract before any money moves. In the first video Pace asks the wholesaler for a screenshot of the contract for exactly this reason: he wants to confirm it is the version that lets him get his deposit back if the arrears come in too high.
Call the escrow officer before the deposit lands and say three things: the deposit is borrowed, who it is coming from, and how that lender is to be repaid at closing. Follow up by email so it is in the file.
Pace compares this to the commission instructions an agent sends title: nobody expects to be paid out of a closing they never told title about. For a lender it is the same. Once title knows, the payoff can go on the settlement statement as a line item, and a later refund request naming the lender will not come as a surprise.
In the video the title officer says her company requires signed authorization to release any deposit, even when the contract already covers it. That is common. Many escrow and title companies will not release a deposit without signatures from both buyer and seller, or a court order, whatever the contract says.
Instead of arguing, Pace asks for title’s own release form and has the seller sign it at the start, to be held in the file until needed. The timing matters: at signing, both sides agree on the inspection period and what happens if you cancel. After a cancellation — say the reinstatement figure came in higher than the seller estimated — the same seller may be upset and refuse to sign. Explain the form plainly when you ask for it. A seller, especially one behind on payments, should understand exactly what they are signing; a signature they didn’t understand is a weak thing to rely on and a bad way to do business.
In the video he describes Texas as a state where escrow typically wants a mutual release. The general lesson applies anywhere: in states and with escrow companies that require mutual release, a contract clause alone may not get the money back. Ask the escrow officer what their release policy is before you wire, not after you cancel.
The purchase contract protects the deposit. It does not create the loan. You need a short separate agreement, signed before the wire, that covers at least:
Have an attorney in your state draft or review the template once, then reuse it.
Usury and licensing vary by state. An EMD or gator loan is a private, business-purpose loan, and a flat fee on a short loan can be treated as interest when a court or regulator does the math. Usury limits and lender-licensing rules differ from state to state, and in some states they can apply even to business loans. Check your state before you lend or borrow.
The cleanest repayment is the closing itself. Worked example, using the San Angelo numbers from the first video in the same series (walked through in full in our gator lending guide):
| Item | Amount | Where it shows |
|---|---|---|
| Arrears, assignment fee, agent, closing costs | $41,800 | Charges, buyer side |
| Deposit the gator wired to title | −$5,000 | Deposit credit, buyer side |
| Repay gator principal | $5,000 | Disbursement to third party |
| Gator’s flat fee | $3,000 | Disbursement to third party |
| Needed from the takeout lender | $44,800 | Loan proceeds, buyer side |
The $5,000 appears twice, and that confuses people. It is credited to the buyer as a deposit, which reduces what the buyer has to bring, and it is paid back to the lender as a separate disbursement. The takeout loan has to cover both, plus the fee. In the video the private loan is put at about $44,000 against a rounded $41,000 entry cost; the line items actually total $41,800 before the deposit credit, so the precise takeout is $44,800. The $3,000 fee is the only true added cost. If your takeout lender sizes the loan without the gator payoff, the closing comes up short on the day.
The lender should ask title for a copy of the final settlement statement before closing and check that both lines are there.
| Check | Why |
|---|---|
| Signed purchase contract with the refund clause | No clause, no direct refund |
| Inspection period end date | After it passes, the deposit may be the seller’s |
| Escrow officer’s release policy | Mutual release means you need the pre-signed form |
| Title acknowledgement of the lender | So the payoff lands on the settlement statement |
| Borrower’s takeout plan | Who funds the closing, and are they committed |
| Signed loan agreement | Your only recourse if the deposit is lost |
| Wire instructions confirmed by phone | Fraud defense |
Wire fraud deserves its own rule. Criminals spoof title-company and agent emails and send “updated” wire instructions, and a same-day EMD wire under time pressure is exactly the situation they look for. Before sending money, call the title company at a number you looked up yourself — from its website or a prior closing, never from the email with the instructions — and confirm the account details verbally. Treat any change to instructions as fraud until proven otherwise. The CFPB’s guide to mortgage closing scams and the FBI Internet Crime Complaint Center alert on business email compromise both describe this pattern and recommend verifying through a second, trusted channel. If money goes to the wrong account, call your bank immediately and report it at ic3.gov.
Borrowers: the same rule applies when you give the lender title’s instructions. Send them the title company’s phone number and let them verify directly.
Restar Acquisitions funds earnest money deposits short-term for investors and wholesalers on business-purpose deals through our EMD funding program. Every file follows the steps above: we review the contract’s refund language, confirm escrow and the wire instructions by phone at a number we source ourselves, have our payoff acknowledged by title, sign a short loan agreement, and get repaid at closing through the settlement statement for a flat fee quoted per deal.
We won’t fund owner-occupant or consumer loans, and we won’t wire into a contract that gives the seller a clean claim to the deposit. If the file needs coordination as well as money, our transaction coordination team tracks deposit receipt and deadlines. For background, read what gator lending is and how much EMD a wholesale deal needs. Send the contract through the EMD funding form; we reply the same business day.
Send the contract, title contact and closing date through our EMD funding form. We reply the same business day.
All wholesaler services · Request EMD funding · Add transaction coordination · Submit a deal instead
Keep reading: Gator Lending: What It Is and How the Math Really Works · How to Find a Gator Lender (and Vet One Before You Wire) · Gator Lending vs. Hard Money vs. Transactional Funding
