A real estate contract does NOT terminate at the death of a party, and the estate of a party is bound by that contract if the other side wants to try and enforce that contract in a court of law – which would probably be a probate court. The still living party would perhaps even have to OPEN a probate action on the estate of the other party to the contract.
The reason that most deals “die” with the death of the party is the cost and trouble to do exactly this.
And most folks do not see the sudden and unexpected death of a party as a default, and thus it is common and perhaps inherently fair to release the earnest money back to the buyer and for both sides to say “sorry, we tried.”
The title company, in releasing the earnest money, usually just wants some semblance of authority on behalf of the deceased party to sign a release. So if the buyer died, then the title company would try to ascertain who the intestate “heirs” of that buyer are – often the spouse, or the kids if the person is single. That heir or heirs would sign the release on behalf of the deceased buyer’s estate (no, they don’t need to probate the will unless perhaps we are talking about a huge commercial deal and huge earnest $$) and the seller would also, and we would be on our way.
If the deceased was the seller – same idea. Heirs would be determined (title company will help with that) and they would sign the release and the buyer would also, and the earnest money would, in our perfect scenario, be returned to the buyer.
Could you have a situation where the death of the party is viewed as a “default” by the other party, for failure of their estate to close on the contract as written, and they want the earnest money ? Perhaps, but death right before closing is rare enough. Death right before closing coupled with unreasonable sellers is even rarer.
Ha !! I’m being tacky. But I have a point of view, and its entirely personal. I think if you die, the other side should give your heirs a break and not punish them financially for your sudden demise. But not everyone has to feel that way.