The topic of this post, and Robert’s question, involved the Finance Contingency and not the Inspection Contingency.

Many escrow companies by policy require both signatures to release the Earnest Money, but the Inspection Contingency is generally a unilateral right to cancel using the standard “Buyer Satisfaction” form. The cancellation form used for the Inspection Contingency does not require the seller’s signature. Nor does cancelling based on a Resale Certificate when buying a condo. So some situations do not require the seller to agree by signature.

There used to be two types of inspection contingency forms in this area. One was called “Seller’s Opportunity to Repair” and provided the terms you suggest. The other is “Buyer’s Satisfaction”. Now only the 2nd type exists as a NWMLS form and the one you would prefer was taken away. Not sure why.

During the first 5 to 10 days or so, depending on how the contracts are completed, a buyer generally has the right to cancel after doing their due diligence. So from a seller’s perspective, the house is really not sold until it passes through this period. Here we have an Active STI status and the property doesn’t go to Pending until the Inspection period is complete and conditions negotiated and satisfied.

Generally the Earnest Money is forfeited UNLESS the buyer leaves based on a “legal out”. Your buyer had the legal out during that period and did not need your approval to cancel.

All that said, I agree with you wholeheartedly. Often I yearn for the days when real estate made more sense. When I started in real estate the Inspection Contingency had a dollar limit, a blank to be filled in and agreed upon. The buyer could not cancel unless the report contained actual defects of “covered” items that exceeded the agreed upon amount. The seller has a right to know if their home is sold before they have to start packing.

When Inspections first started, the buyer was permitted 7-14 days to do an inspection, but the escrows were much longer at 90 days or so. Now the escrow is halfway done at the point where the buyer is still on the fence about buying the house during the inspection period.

The whole process is in grave need of reform.

Specific to your questions, the answer to 1) is no under the current standard inspection form generally used. The answer to 2) Earnest Money is forfeited if the buyer cancels with no legal out.

It really is very sad and I don’t blame you one bit for feeling abused. It’s one of the reasons I think buyers and sellers should meet one another before entering into an agreement that affects both parties so very much. A buyer should have to look the seller in the eye when delivering news that affects them so much, don’t you think? Maybe they’d think twice about their actions if they had this type of accountability.

Other than shortening up the inspection period, there’s not likely anything your agent could have done. Recently I have not been permitted, as the seller’s agent, to attend the inspection. I’m mad as hell about it, as I think the seller has a right to hear what is going on, if not in person than by representation of his agent. But most inspectors deem the info to be “confidential” and between them and the buyer only, as do buyers.

You should have continued to show the house, and maybe gotten an offer into backup position if possible. I wish you the best of luck, but again, your agent likely was not at fault in any way and could not have prevented this outcome.

Agents – Do your sellers think they are going to get the EM if the deal falls through? How often has this actually happened in your career? How often have your buyers lost their EM? My guess is that most agents (like myself) have rarely, if ever, been involved in a transaction where EM was forfeited.

First my opinion. Release her Earnest Money. You clearly wouldn’t expect the woman to stay under those circumstances, would you?

Next, in any State I know (Wisconsin not being one of them) the statements are true. No money can be released without the signatures of both the buyer and the seller by a real estate office or escrow holder.

The money is not held indefinitely. There is a hearing or small claims action or some intercedence at some mandated time in each state. Usually that is called an Interpleader action, where a third part tells the escrow holder how to release the money. That then over-rides the buyer and or seller’s opinions.

If the paperwork is clear, then there may not be a hearing. If the paperwork is not clear and it is gray, then there would be a hearing of some kind. Each State will have a maximum time the money can sit idle in the escrow before the request for interpleader is due. The hearing is then sometime after that. Usually it’s within 30 days or so of knowing both parties won’t release voluntarily and the hearin is within 30 to 60 days of that.

If a buyer voluntarily quits their job and then is denied the loan, you would like be correct. But is being sexuallly harassed actually a voluntary matter? If you don’t believe she was sexually harassed, ask for some proof of a legal action or letter to her company from an attorney. If the sexual harassment issue is real…you can wait for a 3rd part to decide, or decide the woman should not have been forced to remain in that situation…your call.

In any event, there is a method of release in every State when the seller won’t sign the release. It takes awhile and yes, it can hold you up from selling since you haven’t released the first buyer. But I personally sold a house once without releasing the Earnest Money by releasing the buyer from the contrtact EXCEPT as to the Earnies Money. I’d say go see an attorney, but it may cost you as much as the $500 you are fighting about. So my opinion…get proof that she is pursuing a sexual harassment issue and then let it go and get on with selling your house. Maybe she has a new job by now. Maybe she wants to buy it when she gets a new job.

Get to the heart of…and have a heart.

I’m not a lawyer…not even close disclaimer

I’ll leave the legal issues regarding this date that date to the lawyers. But let’s look at the practical aspects.

1) You are supposed to know you can get the financing before you make an offer, and before the property is taken off the market. The finance contingency is to cover unforseeable events, like loss of job. The home is not supposed to be off market while you figure out if you are “financeable”. Time off market is a great seller disservice, it assumes the buyer has first pre-determined that they can get a loan, on that place, at least 98% sure. It’s not a “let’s tie it up and figure out whether or not we can actually buy it later” proposition.

2) If it is the property itself that makes it not financeable, then the only proof of that is that no other unit could be sold with financing, and not that you have a letter from the lender saying your loan was denied.

Some problem complexes (like co-ops) need the buyer to finance with one of the company’s willing to finance, and not necessarily a lender of choice. Even new construction works that way sometimes. Again, I’m dealing with practical aspects, and not pure legal aspects.

If you were 100% sure you could get a loan, and still can, but not on THIS place. If it is truly the seller’s problem in that the property can’t be financed and not the person, then clearly you can get your Earnest Money back, regardless of the legal issues.

But if anyone financed in there in the last six months, it will be pretty hard for you to hang your hat on the defense that the property is not financeable.

Extension after extention, more time off market, consider the seller’s loss here. How long was his property off market? If it is all about his property being the problem, and not you at all, well yes, he should take the full disadvantage. But if it is only you who can’t get a loan, then why should the seller suffer with no compensation?

Think about “Who should get the Earnest Money?” Who is the damaged party? Who caused the damage? It is not about CAN you keep it, but SHOULD you keep it, sometimes.

Now go ask the lawyers if you can keep it whether you deserve to keep it or not.

At this point, after 3 extensions signed by Seller and Buyer, buyer was unable to obtain financing. We tried several banks not just one and they all came back with several obstacles, one of them being that the condo is a non-warrantable condo.

The seller is disputing the deposit based on the fact that he did not receive notice in writing of failure to obtain financing, prior to the last extension date.
Last extension date was Feb 2, 2007. I have a letter of denial dating Feb 1st but it wasn’t actually sent to me until Feb 7th and I then sent copy to Seller on Feb 9th.
He is basing his dispute on that mere fact that enough time was given, 2 extensions were given, and we failed to provide written notice of financing denial.

However, I do not see anywhere in that Financing clause, that it states written notice must be given. It simply says we have to demonstrate good faith and provide all information to the lender, which we did.

Can the seller get this full deposit because he did not see a copy of that denial letter prior to Feb 2nd?

Great work and thanks for clarifying some very important points. Maybe it’s worth another blog post to discuss why some agents seem to feel that they are diametrically opposed to attorneys when it comes to real estate transactions. I constantly hear people say “if an attorney gets involved this deal is dead” or “lawyers kill deals.” I have yet to experience it and I work with attorneys frequently on behalf of my clients – and their accountants/CPA, financial advisors, insurance agents, and more. We have to be able to coordinate a large number of people to make sure our client’s best interests are being represented and that often means that we, as the agent, aren’t the center of the world – but we can be the center of the effort and we can help make it be successful.

Keep up the great posts!

Was wondering if the attorney might get paid if escrow doesn’t proceed, unlike Title and Escrow Companies. Maybe the attorney is holding it until he gets paid? I don’t know any attornies who work for free