It’s not a good time to look at this issue from a hindsight perspective. In this changing market, we need to revisit this topic and talk about how a changing market may influence your decisions and actions in 2008.
In a hot market, the instances of the seller wanting to keep your Earnest Money are fewer. When there’s another buyer standing in line behind you, sellers will often simply say NEXT!
But when buyers making offers are fewer and further between, you will see more sellers wanting to keep that Earnest Money. Time to address this topic from a forward thinking perspective in “better safe than sorry” fashion.
Step 1) The amount of the Earnest Money. When a buyer makes an offer they “put up” Earnest Money. Most buyers will ask, “How much does it NEED to be?” That is really not the way to look at it. Instead ask yourself, “How much am I willing to LOSE?” The purpose of Earnest Money is to get some skin into the game. It’s how you show the seller that you are making the offer “in earnest” and willing to proceed “in good faith” to closing. So DO NOT write that Earnest Money check expecting to get it back if you change your mind! You never should have of course. But it may become more likely in 2008 that sellers will want to keep that money, than they did in the last 4 years or more.
NEW RULE! Don’t write that check for an amount more than you are willing to lose, if you simply change your mind about buying that house. The seller and seller’s agent may counter and ask for more, as they should if it is low. But don’t agree to an increased amount until you again ask yourself, “am I REALLY willing to LOSE this much if I change my mind?”
Step 2) Choosing Your Closing Agent (Escrow) In a Seller’s Market you will often see instructions from the seller’s agent regarding which Title and Escrow Company you are to use when writing an offer. In a hot market you likely won’t want to lose the house arguing over this point. But when you are the only offer in the room on a house that has been on market long enough to feel comfortable that you can bargain in a reasonable manner, choose your escrow company wisely.
Whether it is the Closing Agent or the Real Estate Broker holding your Earnest Money, you want to make sure that they honor unilateral rights to cancel BEFORE you agree to make out that Earnest Money check payable TO them.
So what does that mean? It means sometimes the buyer has a unilateral right to cancel, but the escrow holder has an “internal policy” of requiring the signatures of both parties to release the Earnest Money. Many, if not most, very large escrow companies do not want to take the risk of releasing the Earnest Money to the buyer unless the seller agrees. Sometimes you need the seller to agree and sometimes you don’t. If the escrow holder won’t give you the money because of their internal policy vs. the Purchase and Sale Agreement, you may find yourself talking to a wall instead of getting your money back.
NEW RULE! Pick not only your escrow company, but also speak with your closing agent BEFORE writing that Earnest Money check. Ask your agent writing the contract for your “legal out” addendums in advance. For example, if you are buying a condo, ask for a copy of the blank form you would use to cancel based on the resale certificate. Ask for the form you would use to cancel based on the Form 17 (and do not waive your right to do so in advance). If you have an Inspection Contingency, ask for the form that you would use to cancel based on the Inspection Congingency. Whatever your legal outs, know that most will expire early in the contract. So mark down the drop dead dates of your rights within these legal outs.
Notice whether or not the form requires only your signature to release the Earnest Money, or the signatures of both the buyer and the seller. Let’s assume that these forms only require the signature of the buyer, and the buyer has the unilateral right to cancel. NOW call the proposed Earnest Money holder and verify that they WILL in fact return your Earnest Money with only your signature, in the event you cancel based on one of these uniteral addendums.
If and when you ask someone to agree, they think they have the right to not agree. So if you have say 5 days to cancel, you don’t want the seller to have to agree with your decision in order for you to get your money back. If the escrow company won’t give you your money based solely on the Purchase and Sale Agreement and it’s addendums…well let’s just say you don’t want to be in that position, so know that up front and before you give them your money.
It is not a good time to “go gentle into that good night” and simply not care who the escrow company will be. While you should be prepared to lose your Earnest Money in some cases, one of those cases is not because of an internal escrow company policy.
Do not rely on your Finance Contingency as a means to change your mind. Return of Earnest Money based on the Finance Contingency is rarely, if ever, covered under a unilateral rescission right, as are some other areas of the contract. Often if not always, the seller needs to agree to the release of Earnest Money if you are cancelling based on the Finance Contingency. It’s a good idea to be pretty darned sure you CAN get a mortgage before making an offer. The protection of earnest money often does not go all the way to closing, and so if the loan doesn’t fund at the end on a day that is not covered by the Finance Contingency, or if you didn’t to EVERYTHING in a timely manner…you need to consult an attorney. Sellers will be less likely to say “oh well” in a Buyer’s Market than in a Seller’s Market.
3) When you SHOULD lose your Earnest Money. If you change your mind about buying the house because you have now decided you don’t want it, the seller should keep your Earnest Money. That is the purpose of requiring Earnest Money. You promise to buy the seller’s house, and if you change your mind he gets to keep the Earnest Money. You say, “Here’s $5,000. This is proof that I do ‘sincerely and in earnest’ want to buy your house. If I change my mind, you get to keep that $5,000.” That is what Earnest Money is all about.
Some will say the seller wasn’t damaged, so why should he keep a dime of my money? You have two elections in the contract. “Forfeiture of Earnest Money” or “Seller’s Election of Remedies”. Most times the contract calls for “Forfeiture of Earnest Money”. That means the seller gets your money…period, if you “default”. The seller doesn’t have to prove he was damaged, nor does he even have to be damaged. To talk about damages, you have to have been willing to risk MORE than the Earnest Money at the time you made the offer, and most people don’t do that.
Most people don’t want to pay the seller’s full damages, nor do the want to forfeit their earnest money. So really they want an election that says, “None of the above! I just want my money back!” Doesn’t work that way.
You will see more and more sellers wanting to keep that money than in the past. Why? Because another buyer is not as easy to come by as it was in the last few years. Before you go to an attorney to get your Earnest Money back, maybe you should first look at yourself in the mirror and ask yourself if the seller should get to keep it. If you just changed your mind, “without legal excuse”, remember that is why you put that money up in the first place.
I can understand why an escrow wouldn’t return the money absent the agreement of both parties. Rather than try to find one that will, another alternative is to simply have a provision that the earnest money will not be delivered to escrow until two business days after removal of the inspection contingency, or a note that is due at that time.
Also, I can’t say we’ve had a deal fall apart in better times after the inspection contingency was past, but I don’t know why a seller would give the earnest money back even in a great market. As you note, they don’t have to prove damages if forfeiture is selected. Giving $xx,xxx.00 back to a seller who took your property STI and presumably pending would be extremely generous.
Kary,
If the buyer has the right to cancel after reviewing the resale certificate, and the form only requires the buyer’s signature, why should the buyer not just get his money back so he can go buy something else? If he doesn’t like the amount of money held in reserves, for example. Seems unfair that the seller should have to agree with that, or even for the buyer to have to explain why in order for him to get his money back.
Also, isn’t it misleading for the form to only require the buyer’s signature? If all escrow companies want both signatures, then shouldn’t the form itself require those signatures in the first place as a heads up to the buyer?
Some quick thoughts:
1) Escrow firms comply with the law regarding earnest money going back to the buyer. IE, the law superceeds internal company policy. I imagine this is the real policy escrow firms have.
2) If escrow does interplead earnest money (and we do) to the court if the parties fight over it, you can just about be guaranteed that NOBODY is getting money after attorney fees and escrow withholds fees for work completed.
3) $500 or $1000 earnest money checks are very common and if you get into a earnest money dispute, consider the money gone before you start to argue over it. With today’s prices, why an agent would ever accept a $1000 EM check is beyond me, but perhaps that is for another discussion between agents.
I agree, it’s unfair. The problem is that at the time the earnest money is deposited, no one has signed a contract with the escrow giving them instructions. To give the money back would be possibly opening them up to a lawsuit, so they don’t generally want to take that risk. It’s easier for them to simply ask for the seller’s signature, and if that can’t be obtained, interplead the funds.
Also, the escrow doesn’t know for sure that the seller doesn’t have an argument. Perhaps the buyer already waived inspection, and isn’t entitled to sign the document they signed requesting the money back.
It’s better, IMHO, simply not to put the escrow and buyer into this position and not provide for the deposit of funds until the inspection is over. Beyond the costs of trying to get the money back (which might be recoverable), the temporary loss of the funds might prevent the buyer from buying another property.
I was told in Virginia it is against the law to deposit earnest funds upon completion of a 10 day inspection.. Do you know if this is true? A real estate agent told me this.
It is true, unless you stated terms different from the law in your offer, and the seller agreed to that in your contract. Every State has a law as to when Earnest Money is to be deposited “unless otherwise agreed to in writing”. In Virginia I believe that is 5 business-banking days from mutual acceptance. Here it is 3. Note that is the day it needs to be deposited by the holder of the Earnest Money and not you. Here delivery by the buyer to the entity that will be doing the deposit on day 3 is on day 2 so as to give the escrow holder time to make the deposit before end of day on day 3.
If you wrote an offer that was silent as to waiting until after the inspection to deposit the Earnest Money, then your agent is correct. It is “against the law” unless your contract states otherwise and both parties agreed to a different arrangement.
Tim, how is the escrow supposed to know what the law is?
According to the folks that teach the forms class, selecting the seller is liable for form 17 errors puts the parties in exactly the same position as what the law was prior to March, 2007. The only problem with that position is that every member of the Washington State Supreme Court would disagree with it, and did.
Back when I was practicing law I worked on a case where the insurer paid the landlord rather than the tenant for fire damages. They were convinced that was the right thing to do. They got sued and had a rather large judgment entered against them as a result of it, because they and their attorneys were wrong on the law. If they’d interplead the funds, they wouldn’t have had an issue.
The bottom line is it’s risky to act unilaterally, without court order. Even what you think is clear might be wrong.
Kary,
I clearly interview escrow companies, and will not recommend to a buyer client the use of any who will not give the buyer their Earnest Money without the seller’s signature, on these unilateral legal rights to cancel.
What would you do, Kary, if the Resale Certificate is delivered after the inspection phase is over and the money is deposited in escrow? We look at the Resale Certificate, see a HUGE special assessment being discussed but not yet assessed, and it’s time to go make an offer on something else.
Why should the buyer have to wait or be subject to a possible unreasonable seller’s signature? Or one that is not available and out of town? I had one Company try to pull that once, and my client had has check by end of day by the time I got done. Why should the buyer who has a clear legal right to cancel have to wait for his money back? Clearly as the buyer’s agent we shouldn’t just say, “Oh well, you have to wait for someone to get around to interpleading the funds.”
If you agree it’s unfair, wouldn’t you make sure you don’t recommend that the buyer make a check payable to anyone that might be unfair to your client?
Sorry…not to pick on you. This subject heats my blood to a boil.
In all fairness, it’s just as bad when a seller is told to just give the money back, when the buyer just decides to back out. I’ve even heard some agents and escrow companies suggest that the seller can’t open a new escrow until the Earnest Money from the first, dead sale, is released.
Why have Earnest Money and language in the contracts if no one expects to adhere to what the buyer and seller relied upon at the time they signed the Purchase and Sale Agreement?
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“If all escrow companies want both signatures, then shouldn’t the form itself require those signatures in the first place as a heads up to the buyer?”
Ardell, the escrow company wants both signatures so that there’s less risk of a dispute over it prematurely releasing the funds. For instance, many of the “legal outs” you describe in your post turn on “factual” matters that are easily disputable. For instance, rescissions based on disclosure documents (e.g., Form 17, Resale Certificate, ILSTA Property Report, etc.) are time sensitive and a buyer who does not timely deliver notice of rescission may be barred from rescinding on that basis. Here’s an example, Seller faxes the Form 17 to the office of Buyer’s Agent at 7 pm on Monday after everyone’s gone home resulting in Buyer not receiving it until Tuesday. Buyer decides to rescind and faxes the rescission notice on Thursday afternoon. Is the Buyer’s rescission timely or not? How is the escrow company supposed to know who is entitled to the money if the Buyer and Seller dispute the issue? Escrow’s job is to impartially serve the parties not to act as arbiter between them.
Marc,
So if the Buyer sees the Resale Certificate within 24 hours of it being completed by the Management Company and rescinds on the second day…you would support his Earnest Money being held awaiting seller’s signature? Or worse yet, held indefinately if the seller will not sign?
The seller could be angry that the Management Company took so long to prepare it. (I believe they have 10 days by law). Why should the buyer suffer in that event? It could take many weeks for an interpleader.
Is there a time, by law, that the escrow company has to file that Interpleader? and who pays for the costs?
If you agree it’s unfair, wouldn’t you make sure you don’t recommend that the buyer make a check payable to anyone that might be unfair to your client?
“…the escrow company wants…”
What gives them the right to impose what they “want” over-riding the contract in place between the parties, and the laws regarding rights to cancel?
Marc,
I agree with regard to Earnest Money being held by the escrow company. In fact that line was in my original post, but I deleted it before posting.
Ardell,
I can’t say off hand what the statutory deadline for a resale certificate is and I’m not up for legal research tonight. As for an interpleader action, I believe the Form 21 PSA calls for an interpleader within 30 days of receipt of a demand for the earnest money from either of the parties (you can double check for me). However, I frequently see cases where 6 months pass with the money sitting in a trust account and the escrow doing nothing and at least one case where well over a year passed. It’s pretty common for one of the parties to have to light a fire under escrow to get things moving. We often try to get opposing counsel to agree to transfer the funds out of escrow and into our firm trust account or theirs in order for us to set up an interest bearing trust account pending litigation or settlement.
Marc is correct. (and I was thinking the same thing about prematurely releasing EM…especially if escrow feels pressured by an agent that sends a LOT of business to escrow) Further, escrow does not really want to hold anything…let me re-phrase….escrow does not want to get into the middle of anything. There is much too much other pressing matters to work on.
Escrow abides by the P & S agreements AND by the escrow instructions the parties have signed. Generally, if the parties can’t get something resolved within 30 days, then interpleading takes place.
“I don’t care if you have to interplead, I just don’t want the other party to get anything” – that’s the real deal folks.
Tim,
I had the opportunity to sit in on a case once between a buyer and seller regarding Earnest Money.
The Courtroom was full of people on different small matters, small claims court.
At the Opening a Dispute Resolution Company got to speak before the Judge came out. They said something like:
Everyone in this room thinks they are going to WIN. Half of you are WRONG. So before you find out if you are the unlucky one here today, we invite you into the next room to resolve your dispute. Because once the Judge rules, half of you are going to leave empty handed.
Ardell, how do you know what the law is? I ask that in all seriousness, and will bring up the Form 17 issue again. The folks at the NWMLS, who are the same ones who say the buyer has an unconditional right to rescind, can’t even tell you what the law was on Form 17 prior to March, 2007. I don’t think it’s entirely inconceivable that if someone litigated it, the court would impose a good faith requirement on the inspection process. I had a situation last year where the buyer backed out on inspection without ever going inside the house. If that had been litigated, and if the court did impose a good faith standard, if the escrow had released the funds to the buyer, then the escrow would be in trouble.
I think my solution of delaying the deposit or using a note works for everyone. The only other solution I see is an escrow requiring both parties to sign escrow instructions at the very beginning.
I was in court once where parties were fighting over rights to some pianos, and there were so many attorneys there the court suggested just giving every attorney a piano!
BTW, the Landis case from last year, involving an agent holding earnest money, the lower court awarded a judgment in excess of $60,000 for damages and a like amount for attorney fees. I don’t remember what the Supreme Court did, but it just shows the kind of liability you can face holding funds.
Marc wrote: “Here’s an example, Seller faxes the Form 17 to the office of Buyer’s Agent at 7 pm on Monday after everyone’s gone home resulting in Buyer not receiving it until Tuesday. Buyer decides to rescind and faxes the rescission notice on Thursday afternoon. Is the Buyer’s rescission timely or not? How is the escrow company supposed to know who is entitled to the money if the Buyer and Seller dispute the issue? Escrow’s job is to impartially serve the parties not to act as arbiter between them.”
Or what if the rescission was faxed direct to the agent rather than the agent’s office. Escrow doesn’t notice that error and releases the funds. They are then liable.
Kary,
I don’t disagree with any of those possibilities if it has to go to court (love the piano story).
“The folks at the NWMLS, who are the same ones who say the buyer has an unconditional right to rescind, can’t even tell you…”
The NWMLS doesn’t “say the buyer has an unconditional right to rescind”, the contract does. “If within 5 days of receipt buyer gives notice of disapproval…this agreement shall terminate and all Earnest Money refunded to the buyer.”
No ambiguity there. So if everyone agrees that no one is going to care what the contract says, where’s the disclaimer to the buyer? “Oh, by the way, yes it DOES say you get your Earnest Money back…but that’s not clear enough to actually GIVE you your money.”
Sorry. I’ve been waiting over 15 years for buyers to be treated a little better than that. Glad I wasn’t holding my breath. Still, so far, I’ve been able to get the buyer’s money back without the buyer needing to ask the seller for his permission. Hope that doesn’t change in a slow market.
If a seller has been waiting 4 months for an offer, he may not be all that willing to let that buyer go, even if the contract has clear instructions with regard to the release of the Earnest Money. A timely post, I’d say. We could be seeing more of these issues coming up.
“Ardell, how do you know what the law is? I ask that in all seriousness,”
The specific and relevant RCW sections are noted in the contract for convenient reference. However in most cases the bottom line from the RCW is quoted in the contract itself, so you don’t have to go look it up.
Ardell,
I don’t recommend reading RCWs in a vacuum. RCWs are only one aspect of “the law.” There is also the “common law” which, broadly speaking, refers to principles and rules found in court opinions issued in decided cases. There are also canons of “construction” and rules of “interpretation” which are derived from common law and have significant importance when it comes to contract disputes.
The words written within the four corners of a written contract are always the place to start when deciding what the relative rights and obligations of the parties are, but, those words are almost never the end of the story. All too often, those words are capable of different interpretations and when such ambiguity is found in a contract only a court of law can see through the ambiguity to decide, once and for all, who’s entitled to what.
Luckily these things seem to happen most every day, without much dispute. What a horror it would be if every Earnest Money return situation had to end up in Court.
I have heard people get mad at their agents “for not giving them their earnest money”. So far I’ve been lucky not to have these kinds of problems myself. But often people don’t want to understand that the agent who told them to write the check, has no power to get it back. Most often the Earnest Money goes back, as the contract indicates.
Where I work (Northern Virginia) our contract to purchase spells out specifically that if the situation occurs that the earnest money should be returned, both parties have to sign before the funds are released by the title/escrow company. (no matter if it is the buyer or the seller that initiated the contractually acceptable reason to void). The contract states that the parties must sign off on it in a timely manner.
That of course doesn’t stop some aggrieved parties from being difficult about it, but it takes the liability out of the escrow company’s hands.
This same issue is a huge one in Oregon. But I can tell you that our RE Division does not consider the Purchase and Sale Agreement as adequate instructions to escrow. It is an agreement between the parties and enforceable. The agreement states that parties in dispute may arbitrate of even use the small claims court venue.
But escrow must have separate specific instructions to release money. We aren’t able to determine who is right and who is wrong. There was a new law passed last year which does say that we may use a Termination Addendum, provided it is NOT done concurrently with the Purchase and Sales Agreement and, of course, provided is is signed by both parties, has the title company’s name and directs us to return the earnest money to one party or another.
Ardell, what about my situation where the buyer never attempted an inspection? I think my clients would have had a pretty good argument that they could keep the earnest money, because no attempt was made to inspect. That it’s an implied condition in the contract that you’ll make a good faith effort to inspect. That argument might not prevail, but it’s not frivolous either.
Also, I wouldn’t place too much reliance on the fact that the NWMLS form doesn’t contain a place for the seller to sign. Their assignment of buyer’s interest form only contains a place for the parties to initial, but I’d think actual signatures would be required for that. And the NWMLS’s Form 17 doesn’t have a place for buyers to initial each page, which is clearly bad practice (we require that or at the very least the entire form faxed back with fax headers so that it’s clear what pages the buyer actually saw). So IMHO, the NWMLS form should be amended to include a signature line for the seller to sign off on the release of funds.
Kary,
I’ll take the bait. The first line of the Form 35 Inspection Contingency states: “This Agreement is conditioned on Buyer’s subjective satisfaction with inspections of the Property and the improvements on the Property.” I can recall at least one case where a court deemed a buyer’s visit to the subject property as amounting to an inspection (albeit on very specific facts). Finally, the Form 35 does not explicitly state that a Buyer cannot perform his or her own inspections, in fact, the second line says the Buyer’s may include “without limitation” a litany of different types of inspections.
So, I would argue that a Buyer who walked through a house one single time performed an inspection during that walk-through and is permitted by the terms of the contingency to later disapprove the property on the basis of his/her inspection so long as he/she does it in a timely manner and in a sufficient writing delivered to the seller or seller’s agent.
I meant to emphasize the word “subjective” in the first line of the Form 35. I think that’s the key word that a buyer would rely on because it’s an express term. You’re absolutely correct, however, that parties to a contract have a duty of good faith and fair dealing. That said, I think the express term will modify the duty of good faith as it pertains to rescission based on inspection, which is to say, there is no reasonableness standard where parties freely negotiate a subjective standard.
But in the case I was talking about, the buyer didn’t even do a walkthrough after signing the agreement. At best they did a driveby. Perhaps they did nothing at all–just backed out.
Again, playing devil’s advocate:
If the buyer visited the property before making the offer there’s your inspection. If the buyer never visited the property but his/her agent did, there’s your inspection.
If neither of the above but the Buyer viewed online photographs, there’s your inspection. I know this seems a bit absurd but the Form 35 says the Buyer’s inspections can include the “general condition” of the property and I would think such conditions could be deemed visible from a photograph, especially in the case of a fixer upper or a house with bizarre paint choices (e.g., the turqouise kitchen may be the Seller’s dream but the Buyer’s nightmare when they see a bid to re-paint).
I’ll give you the picture one (that would be a “virtual inspection”), but I don’t think anything that happened before the offer was written would count. And also, it’s possible that the court would interpret the term “inspection” more narrowly.
The point is though that why should an escrow take a risk in this type of situation? In the case I was describing the seller did sign off without issue. But what if they wanted to make it an issue? If the escrow had given the money back without their signature, they’d probably want to make that an issue too! People that are litigious don’t tend to be selectively litigious.
Your dead on about escrow not wanting to take the risk of prematurely releasing the money – too many variables. And you certainly have an arguable position about pre-offer inspections. Ardell was also correct when she said:
“Luckily these things seem to happen most every day, without much dispute. What a horror it would be if every Earnest Money return situation had to end up in Court.”
The good news is that the mass majority of deals go through or get rescinded without a hitch. Unfortunately, I believe it is quite common for one or both sides to agree to rescind or to complete the purchase based in imperfect (and, on occassion, flat out incorrect) information from their agent. The very point of Ardell’s post exemplifies the fact that real estate agents do not possess (and are not expected to possess) legal expertise.
We only had this issue come up once on the buyer’s side. The inspection found possible structural defects (and other defects) in a bonus room the owner had added. The listing agent was out of town when it all blew up, so it took a while to get the seller’s signature. In the mean time I got a phone call from a rather upset significant other of the seller, who accused us of being unethical, threatening suit, etc.
About two months later they came back to see if we’d take the house at $10,000 less than the prior deal. Given the phone call–nope.
Burned bridges are indeed hard to mend. I try to be pragmatic in situations where the other side has behaved poorly. When they come crawling back, as in your example, I advise clients to set aside personal animosity and to seriously consider the house itself, not the sellers. If they are interested in the house, the seller’s behavior will fade from memory in fairly short order after moving in and will be relegated to a funny anecdote.
The anecdote is all the funnier if they take my next bit advice: stick it to the seller. If the seller is desperate enough to have crawled back, then they’re primed for a low ball offer and any previous negotiations are almost irrelevant. Of course, having any chance of success is dependent upon the presentation which means you have to sugar coat it for the seller. I’ve had this approach work when talking to the seller’s agent in a situation similar to what you described: “My clients love the house and they are definitely interested in trying to make the deal work but certain other events have occurred in their situation so the only way they would have any chance of making a deal work is if the price is $20,000 less and the structural defects are repaired before closing. Mr. Agent, I can imagine your client will never go for such a big change but I owe it to my client to at least offer it as a possibility. Let me know if this is worth exploring and if so we can put it on paper.
OMG,
What happened here? We are agents for buyers and sellers. we enter into agreements concerning the purchase and sale of Real Estate. The question is when there is a meeting of the minds to make a transaction. The transaction is the exchange of money for a right to the use and enjoyment of a property.
When does the meeting of the minds take place?
It is after the inspection that everyone is so intent on. The purpose of the inspection is to hold at arms length the liability of any material defects in the property from the seller or agents involved. The inspection can benefit the buyer, but from the point of the inspection is a threshold of no return.
Finanacing is now couched with the terms pre approved for a loan so the inspection seems to be the last of all negotiations; the door is closed and the transaction moves forward.
Earnst Money shows intent. How earnst is the buyer? If there are damages the the Earnst Money is now considered the sole remedy. Prove damages, prove the transaction should move forward, or best of all prove a meeting of the minds and the Earnst Money goes to the seller.
In the mean time the buyer whose Earnst Money is held in escrow has monetary consideration. The buyer can choose any number of nasty tactics to get the Earnst Money. The buyer can claim fraud, the buyer can claim defect, the buyer can claim whatever the buyer wants to and the seller has to prove them wrong.
Actually we can go on about this for weeks, months, years, decades, or forever. It has nothing to do with the Real Estate business. Do we get paid to go to court or facilitate a meeting of the minds?
I don’t know if we get paid to court or facilitate a meeting of the minds, but we get paid when we accomplish that.
And in any case, one thing we do get paid to do is protect our clients’ interests. I do that by delaying the deposit of earnest money. Ardell does it through her selection of the escrow. How many people buying without an agent know to do anything? I find most the people who think they know what do do simply don’t know what they don’t know.
ok ,all you smart people- I have a problem with getting earnest money back from a loft project in austin texas. If anybody wants to help me I will be happy to explain the issue(s). I would prefer you knew texas real estate laws-that would be mostt helpful. I got really bad advice from my agent who was friends with the builder and released my earnest money to him with the understanding that I would get it back .. but that was a year ago- I filied a complaint with TREC…. much more to follow if you want to hear it…..I Got bullied!!!
thank you-
jean
Jean,
We don’t get too many people from Texas over here, but feel free to tell your story. Often many can learn from it. How long were you in escrow before you cancelled and why did you cancel?
Here is our situation- We are the sellers, signed a purchase & sale agreement in Feb. with a March 19th closing and then sign an extension for closing on March 26th, the buyer and the agent missed every deadline for inspections, title question but we kept going with the deal. The buyer and the agent assured us they wanted the house. We even did extra work to the house because the appraiser wanted some things done. We signed on the escrow papers and the buyers chose not to sign after we had signed. We sent a rescision, they ingored it and sent us one from their agent requesting the earnest money returned to the buyers. We should get the money under all the things I have read and from what our agent tells us. However what is the process for recieving the money, our agent isn’t really clear on how this works- he has never had a deal go like this. How does this who gets the money process go?
This is happening more often recently then it has for many years. There is no automatic process for either you or the buyer to get the Earnest Money unless you both agree and release.
Contact escrow. They should have preprinted instructions on how to proceed.
Most often:
1) Buyer and Seller sign off on it. If they don’t agree 100% often they agree to a 50/50 split. Many are resolved in that manner.
2) You can sue the buyer for the Earnest Money in small claims court. Escrow should have instructions for that process. If you choose this route don’t show up assuming the judge will agree with you. Be prepared. Do you know why “they decided not to sign”?
No one can release the money without the written authorization of both the buyer and seller or a court order.
If the money just sits there, and is small, eventually an attorney will be assigned to dispose of the matter and often the fee to do that is as much as the Earnest Money. So the EM becomes payment of legal fees. So try for 1 or 2 above before that happens.
This is not legal advice…simply my observations. If the amount of the Earnest Money warrants such…hire an attorney.
I’m assuming you are in the Seattle area. If not and you are in another State, there are likely other methods for Escrow to follow, so contact the escrow holder for instructions before you do anything.
Colleen & Ardell,
First off, the following is not intended as legal advice and should not be construed as creating an attorney-client relationship.
Second, if the seller is in the right and the buyer breached why should the seller have to give up half the earnest money? The parties freely negotiated the amount of money that the buyer would put at risk and I, for one, think it should mean something.
Third, most deals in Seattle involve more than $4,000 in earnest money. $4,000 is the maximum recovery you can get in small claims court; therefore, small claims may not be a very good option for a seller who has been wronged.
Fourth, there is uncertainty whenever litigation is being considered. You never know how a judge or jury is going to decide and, since most real estate contracts include an attorney’s fee provision, a loss in court may be much more costly than just the earnest money. Accordingly, there’s something to be said for splitting the earnest money (see # 2 above).
Finally, I’d be happy to help you Colleen as this is a very common type of case that we handle. I suspect that you would benefit from having an attorney look at your contract, discuss the facts of your transaction, and advise you on your options. Alternatively, you could agree to rescind the deal, give the money back, and move on with your life. I’ll be the first to admit that litigation is highly stressful and makes for some sleepless nights.
If I can be of assistance please call my office at your convenience.
Hi Mark,
I’d like to contact you. What’s your contact information?
Thanks!
Queeny
Colleen, why didn’t your agent’s broker know how to proceed??
I agree, talk to Marc, or at least a real estate attorney that you may already know.
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I recently placed an offer on a property. The offer was accepted, and I wrote my earnest money check. After the fact, I found out that the property was in foreclosure, and the seller had requested a quick sale from their bank. After several weeks of waiting to here from the seller and get approval from the sellers bank, my contract had expired and I, needing a home, went on to find a new property. I have requested my earnest money back, feeling the failure of the transaction to be on the sellers part. However, the seller will not sign the release of earnest money. Most of what I have read here is in regard to the buyer pulling out of the deal. Any thoughts on a situation like mine?
Your Earnest Money should have been returned when the seller couldn’t perform on the closing date. You had no obligation to extend the closing date. Still the escrow holder can’t release without the seller’s signature. It depends where you are what happens next. Contact the person who is holding the escrow and ask them how you should proceed.
If the Earnest Money is sufficient and warrants the cost, contact an attorney.
It would help when people ask questions if we knew which State, if you have an agent and how much the Earnest Money is.
Here’s a question for you guys. Standard P&S agreement with Home Sale Contingency. Earnest money in the amount of $5,000. Home Sale Contingency Expires. Buyer wants Seller to extend the Contingency and is willing to offer compensation by 1) increasing the purchase price and 2) releasing some of the earnest money to the Seller for consideration. The following language is added to an addendum:
IT IS AGREED BETWEEN THE SELLER AND BUYER AS FOLLOWS:
1) The Purchase Price shall be increased by $2,500 to $447,500.
2) Escrow is instructed to release $2,500 of the earnest money to the sellers, which shall be part of the purchase and purchase price. This shall be the total earnest money to be held on this transaction and the remaining $2,500 shall be refunded to the buyer.
The buyer P&S Agreement has expired now and the parties are ready to go separate ways.
The question is, are the sellers on the hook to refund $2,500 to the buyer even though the intent was that it was consideration for extending the contingency window? What would the interpretation be of this scenario when using the above language in NWMLS Forms 21, 22B and 34?
It should have been called a non-refundable deposit, but I think you know that. I’m surprised escrow released it without that language.
As to interpretation involving the language of the three forms named, you need an attorney for that, and I don’t think it is reasonable to ask for that for free on a blog.
It should have been called a non-refundable deposit.
I don’t think a legal opinion is going to help you either. Either the seller will give it back or the buyer will have to sue the seller and the decision will be in court.
You can get 50 people to tell you the seller has to give it back and another 50 people to tell you that it’s obvious that it was given to the seller as a non-refundable deposit. But absent that language in the agreement, none of that will do you any good.
thanks for your comments ardell. my question was not an attempt to get free legal advice. the goal was to elicit the thoughts of the experts here on rcg. i think i agree with your assertion that different people will have different answers to this question. it will be interesting to see how this plays out given the ambiguity.
Well, I would not let one of my seller clients take Earnest Money unless it was clear that is was non-refundable. If both parties understood it was non-refundable, maybe all would have worked out. But obviously there was not only an omission regarding the language used but also a misunderstanding between the parties as well.
That means someone has to “rule” and there is no interpretation that will sidestep that. The language suggests they should bring it back and the situation suggests they should keep it. Nothing in the documents is going to help you solve that dilemma as far as I can see.
You need someone with the authority to read the lines…or between the lines…as they choose.
Missouri-Found the house, made a full price offer, (new construction), $5000.00 em, did everything we were supposed to do, finally got the title commitment special exception-mineral rights have been sold to a 3rd party! Attorney for title company says yes it is true. 3rd party could, at any time, decide to go excavating under our brand new house. We terminate the contract per our realtor based on non-curable title objection. A black & white issue, right? Seller refuses to return our money & now, 1week later, seller’s realtor says they’ll be at the closing table as if we never objected. What’s next?
You need a lawyer on that one. Unless it is a “legal out”, meaning the contract gives you the right to cancel on that specific item, it’s not as black and white as you would like it to me.
“you have five days to cancel after reading report and an additional five days to cancel for any addendums” would be black and white.
I agree that seller is not giving “clear title” to the land and it is a non-curable title objection, as your agent says. But no one can MAKE a seller sign to release the Earnest Money.
If your small claims court has a $5,000 limit, then at least you can take it there at not too much cost. I doubt anyone would rule against you based on the facts as you briefly presented them.
Good luck and sorry we couldn’t be of more help. See an attorney, because if the listing agent knew about the mineral rights being sold off to a third party, and didn’t disclose that, you could have a bigger action than simply your EM deposit. If the current owner bought it the same way they expected you to buy it, and weren’t the ones who sold off the mineral rights, it could be different. So get a consultation with an attorney bring as many facts as you can.
Can you tell if the mineral rights were sold during this owner’s timeframe?
$5,000 E.M.; $327K; two “desktop appraisals” at $270K – $280K;Bank wants another $50K that I don’t have; Standard State of Wash form 462R with “Seller to obtain financing for full cash payment upon closing; no realtor as seller’s price is too high;Seller is under contract to close on their new home the day following our proposed closing;Our mortgage broker suggests that we go back to the drawing board to re-negotiate. If they refuse, will we receive our EM back?
Marilynn,
I don’t know what a 462R is, but our Finance Contingency 22A gives instructions for what happens if the property doesn’t appraise and the parties don’t agree to a resoluction, that does provide for the EM to be returned to the buyer. But there are timelines and must be in writing requirements. So follow your agents instructions and read your finance contingency regarding what happens when the property doesn’t appraise
Hi. I’m selling my house in the Yakima Area. The issue I have is that the buyer did not respond within the contracted time with a request for repairs or other actions relating to the inspection contingency. The buyer did have an inspection done, and he is now asking for money back in closing costs to make repairs (I heard this verbally from my agent). The only other unmet condition in the agreement is buyer financing (he should have no problems with this). My question is then: am I not in the situation where he cannot legally ask me to provide money for repairs? Is he not legally bound by the purchase contract, which now has no contingencies other than financing. To me it seems that his only option is to walk away from the purchase, but then we would legally be entitled to the EM (I know this is not as easy as it sounds). As many people have indicated, it’s not an easy time for a seller to walk away from a buyer with good finances, but I wanted to be clear on the legal aspect before making a decision on what to do. Thanks!
We cancelled purchase agreement within 5 days receipts of HOA doc. Our purchase agreement clear states that buyer allows cancel in that time period because it is a contingincy. Escrow company requires both sides to sign to relase funds. What can we do? To us, it is a clear cut because purchase agreement states it.
Wei,
I take it the seller is refusing to comply. If the seller continues to steadfastly refuse to cooperate, you may need to retain an attorney. A demand letter from an attorney may be enough to persuade them, but if it isn’t, then a lawsuit may be required.
Good luck.
I live in Eugene, OR and the company I work for was purchased by another in Austin, TX. I was in Austin a month ago and made an offer on a house putting down $2000 earnest money. Since then, it has become apparent that the company I would for may not last much longer and my fear is that I would make the move to Austin and not be able to make my house payments. A week ago, as I was considering the risks of making the move, my realtor sent me an email with an addendum to the contract regarding the mandatory membership to an owner’s association. I was to sign it and send a check for $50.00. I asked the realtor why I had not received this sooner and she replied,
“Had I pushed you would have known it before now. In truth-you could possibly use this as an out to the contract (I like to keep those “outs” if possible) if you want but in order to compete the contract we now need this to move forward.
An “out” is for the purpose of the “out”, not for “change of heart”. I think what the agent is trying to tell you is to use the out as intended, and an attorney can advise you how to do that. Did you sign the mandatory membership thingie yet and send your $50? If that was your “out”, to refuse to join based on the Rules and Regs or something, you can’t say “I had a change of heart”. You have to object to the membership for some reason.
I see no reason to be miffed at the agent. She can’t counsel you to break a contract, but she clearly is trying to point you in the right direction…to an attorney.
Most times you only have 3-5 days to use this out clause, so time is of the essence. If you know you want out, find the legal way fast and get out. Don’t release the Earnest Money. Talk to an attorney.
If you have a Finance Contingency (most people do) just send a written letter to the lender disclosing the issue at work. If they deny you based on the same fear that you have, once you have disclosed that fear to them, then you may have an out under the finance contingency.
You can’t just say “I had a change of heart” and then use any old “out clause” like a Wild Card. The out reason has to match the out clause. Your change of heart and fear has to do with the security of your job. Disclose that to the lender and if your fear is valid, it will become their fear as well. That might be the best solution, but don’t sign a release and speak to an attorney. A short consult may suffice and shouldn’t cost much. Make sure you bring your contract and the release form and possibly your agent as well.
Hope that helps.
Thank you for your reply. No, I did not sign the addendum, nor have I sent the check for $50.00
We can’t help you much and posting with your real name can hurt you if anyone sees your “change of heart” comment.
Change of heart, by definition = lose earnest money
That is why there IS earnest money. It means “if I change my mind then seller should keep the earnest money for his time and trouble to date”.
We don’t know the contracts, so you have to get someone involved where the house is. Point blank ask the agent and fast, HOW DO I EXERCISE MY LEGAL OUT? Sounds like you are in Oregon and property is in Texas? So that agent has to give you the name of a Texas attorney, not simply say “talk to an attorney”. It won’t help you to talk to one in Oregon.
But do hurry and do something as time is really important on these things. I’d ask the agent AND talk to an attorney, both. Ask her how the HOA Membership is an out and how you exercise that out. She may have a form for it and the timeframe may not have expired yet. You don’t usually get to the day before closing on these HOA type out clauses.
Keep us posted, but do something ASAP.
Ok, I have a tricky one that no one has hit on yet. I hope someone can offer me some insight on how I should proceed…..
I made an offer on a F/C fixer property in Portland. Bank stated on listing that it’s CASH only offers, no warranties made, as-is.
Big house, 1000 sq ft main flr, 1000 sq ft upper, and 1000 sq ft basement. My agent asked me to write out EM check that day to make offer stronger to bank (I made it for $2400, I loved the house!). I heard back from bank the next day with a counter offer. I responded next day with a counter. Next day (before any offers accepted) my agent let me in to do an inspection with a licensed inspector (her regular inspector), he said property needs work but looks great. Next day the bank counters again and also asks/requires me to waive any inspections (property to be sold as is). They have no idea that I’ve already done an inspection. I felt comfortable with the inspectors findings and agreed to waive inspection. Next day bank agrees on my price and we’re in contract. I think about it over next 48 hours and realize I better get a structural inspector out there just to be sure I’m not buying a money pit (since this is all cash deal it’s taking most of my nest egg to purchase and I need to be sure how much $ repairs are needed). Structural inspector finds the house (built in 1919) was lifted off foundation at some time and the basement, that was originally 4ft, was built higher to an 8ft height using blocks WITH NO REBAR OR REINFORCEMENT. He could see recent repairs done over the years and new cracks since then showing that the house is crushing the basement walls/foundation. His estimate was $50k-$100k to completely redo basement properly so it will be safe…..and financeable to next buyer down the road. I don’t have that much money so the next day I cancel stating the foundation issue was not disclosed to me (and if they didn’t know about it, it’s now disclosed to them). Escrow required me to sign a termination agreement to get my EM back (which I did but crossed out “money to be returned to Seller”, which was pre-printed, and wrote in “to Buyer” and added the reason for termination at bottom of page), but they said I still have to wait for the bank to sign it too. It’s been a month now, house is in escrow with someone else, escrow doesn’t want to help, agent doesn’t want to help and I don’t know which way to go next or if I even have a case. I’d be happy splitting it (even though I know they didn’t have any costs) if someone would just talk to me and ask.
I appreciate any comments to help 🙂
Thanks
” I felt comfortable with the inspectors findings and agreed to waive inspection. Next day bank agrees on my price and we’re in contract.” Never ever use the Agent for the Seller’s “regular inspector”. Agent for the Buyer’s regular inspector could and often is OK, but NEVER the agent for the seller’s regular inspector. Hard to tell from your detail how the agent represented, but looks like the seller. You are in contract by your own admission before you “changed your mind” with no inspection contingency.
I had two like this not too long ago (one in Queen Anne and one on Lake Sammamish) but I had the structual band-aids checked and cancelled WITH an inspection contingency, so no problem.
Technically you have no legal out by contract. Lack of disclosure is not a contract out, it’s a lawsuit. If the amount is small enough get a claim in to small claims court ASAP as first to file sometimes has the advantage. No judge would let them keep the money with structural problems and no bank wants a lawsuit after the fact.
You say they have no expenses, but you could be liable for the difference between your contract price and the lower in escrow contract price. That difference is the seller’s damage and the bank’s loss of your leaving with no legal out.
Get a legal opinion as forfeiture of Earnest Money alone may not have been the remedy in your contract. I’m sure somehow you can get your money back, but it likely will take at least a letter from an attorney and possibly your filing a small claims action.
My $02. Get thee to an attorney.
I am a seller of property in Oregon with a dispute over earnest money. I excepted an extremely low offer because the buyer had cash and an approval letter in hand. The offer was 10K less than the amount they were approved for and 50K less than I was asking. Closing was set for 25 days which the lender said was doable. The home passed inspection, title report, appraisal AND I completed the required testing for closing. On the day of closing the buyer asked for an two week extention. Lender said loan documents were due back from underwriting ANY DAY and had said everything was going just fine. He let it slip he was also working on another loan that allowed the buyer to put zero down but would process the first loan that came back. (WHO puts zero down on anything in this market???)
After I extended the close date I found out the buyer had instructed the lender to stop working on the 10% down loan (the one agreed to in purchase agreement) and which had never actually gone to underwriting. I had my realtor send an email to the buyers agent saying I did not approve the change in terms and would be seeking EM if they did not close. Closing day came again and still no loan documents. Buyers asked for another extention which I declined. The contract expired and I requested EM. The buyers refused to release. Several days after termination, buyers sent loan decline notices on BOTH loans.
1) I wouldn’t have accepted an extremely low offer on a zero down loan or without the pre-approval.
2) Buyers changed the terms of the contract without my consent
3) Both decline notices state that excessive debt was a factor in being declined which would have been known at time of pre-approval if the buyer had disclosed all facts or hadn’t done something to incurr more debt. Even after using the 10% they had in the bank they still couldn’t qualify for the loan.
4) I believe, although I can’t completely prove it, they went out and purchased a NEW $50K vehicle prior to the loan closing date.
I offered to split the EM with them as damage for my time off the market. I’d had a number of good showings and now they are far between.
I have filed a small claims case based on bad faith and misrepresentation of financial status.
The buyer believes they should get their earnest money back because they were denied both loans (i.e loan contingency). Did I mention their lender is a tiny little shop recommended by the buyers agent? They refused my offer to go to a lender that specializes in small properties. I realize I can’t make them but if they wanted the property or thought they could still qualify it was a better option.
Thoughts???
Any adviser!. I was under contract to close to the end of this month
moving from Dallas to Houston, but two weeks before we closed, the Hurricane IKE arrived, them I decided to cancel the contract due to the disaster in Houston area, but the seller denied the reason and keep my Earnest money, is this correct?
eduard,
As you described it the seller is likely correct It sounds like you changed your mind for a reason that has nothing to do with the seller and his house or your contract with him.
If the house itself was damaged or the roads to and from it from where you were going to work in Houston, maybe. But if you just changed your mind and the house was not affected by the Hurricane, then you did not proceed “in Earnest”.
See an attorney and maybe there is something they can find in the contract to get you out of it, but as you stated it, it sounds like you just changed your mind.
Eduard,
This is a quote from my post above “NEW RULE! Don’t write that check for an amount more than you are willing to lose, if you simply change your mind about buying that house.”
If the job you were coming to work at is not longer there because of the hurricane, you might be able to get off on the finance contingency.
I have a question. Out of state buyers wanted to purchase my farm in May. We agreed on price, $100,000 cash so I could pay off the bank, and I would hold a first for $39,000. They did a walk through, agreed to an as is sale and said they needed to sell their “house” and land in another state to get the $100,000. I said I would wait but only until Oct. as I needed to refinance in Nov. They mailed me $1,000 EM and a contract which was not as we agreed so I made the changes, initialed them, and returned both copies to them. They never sent me my copy back but agreed verbally. Now I found out they don’t even have a house and are trying to sell raw land and they asked to do a lease purchase on my farm. Since they have 35 dogs and 13 horses, have terrible credit, have not been very truthful and I have to refinance now, that is not an option. I wanted to sell NOT rent. It is Oct. and about impossible to find another buyer. I have held my farm for them for 5 months do I have to return their deposit/EM?
Sissy, no one would be able to answer that without looking at the contract (and knowing what state you’re in). You’ll need to contact a real estate attorney, and note the cost of doing that relative to the small earnest money amount.
Sissy,
The non-lawyer opinion from me is:
1) Keep working with them if they are the only people wanting your farm and you must sell.
OR
2) Resign yourself to staying put and give them their Earnest Money back.
If you decide to proceed, do not do so without the assistance of agents and/or attorneys, as it appears there are confusions vs. misrepresentations. Any agent would check on what the people are selling and the liklihood of whether or not it is going to sell at all, before a seller signs a contingent contract. It is very easy to check on what someone owns and is trying to sell. That you thought it was a house and it was actually land could actually be the fault of the pre-printed form, more than a misrepresentation by the buyer, and a lack of due diligence on your part in getting the property for sale info before agreeing to the contingency.
I cannot fathom someone moving with 35 dogs, but maybe that is not extraordinary from your standpoint. There are ways to structure this type of purchase to protect you, but clearly you need all the local professional advices and assistance at your disposal. This is not a situation that lends itself to being a FSBO without expert advices.
You may find a lawyer who tells you to keep the $1,000, but the reality is that if someone makes a contingent offer, they should get their Earnest Money back if the property they are trying to sell does not sell. That was the meeting of the minds at the time you entered into the conract.
>>That you thought it was a house and it was actually land could actually be the fault of the pre-printed form<>I cannot fathom someone moving with 35 dogs<>but the reality is that if someone makes a contingent offer, they should get their Earnest Money back if the property they are trying to sell does not sell.<<
I understand that but doesn’t the fact that there was a time agreement in the contract matter? They were to accomplish this by Oct., before I had to refinance.
I have not toooo much of a problem returning their money, just is my big loss as I will not be able to sell this year and have the cost of refinancing. I feel like they owe me “something” for taking this property off the market for 5 months…but, if not, so be it.
“They were to accomplish this by Oct…I feel like they owe me “something
P.S. In our area and most areas the property is NOT off market if their is a contingent offer in escrow. The property stays on market and on the public sites until and unless the contingency is removed. Another buyer can “bump” the contingent buyer, usually with a 3 day right of first refusal. Often if I have a buyer I look for Contingent sellers, as often the best properties are contingent.
Are you sure your property was “off market” for 5 months?
>>The contingency should be very clear and you should be able to find a clause in your contract that says what happens to the Earnest Money in the event the buyer’s property is not sold by the drop dead date.<>P.S. In our area and most areas the property is NOT off market if their is a contingent offer in escrow.<>Are you sure your property was “off market
No contract? That’s too odd for me to respond to. No contract at all? It was all verbal and they just sent a check for $1,000? All contracts involving the sale of real estate must be in writing, so I doubt they can sue you. How can you go to court on a real estate “sale” with no sales contract in hand?
If they have an agent who is trying to sell their property, try giving that agent a call. If neither of you were on market with an agent for the last five months, then neither of you were really “for sale”.
I don’t know much about Tennessee, but look up “the statute of frauds” which generally makes any real estate contract unenforceable if it is not in writing. Most states are subject to the statute of frauds.
Do you live at the house now? If they moved in, where would you go?
>>No contract? That’s too odd for me to respond to. No contract at all? It was all verbal and they just sent a check for $1,000? <>Do you live at the house now? If they moved in, where would you go?<<
No I do not live in the house on the farm. It is rented out. I live a few miles away. I do not want to do a lease purchase with these people. Remember they have 35 DOGS and 13 horses. I want to be rid of them and out of this hand scrawled purchase contract which they never sent me a copy of. lmao At this point I would be almost happy to return their EM that I originally complained about.
Well, Sissy, I’m very happy that our conversation took you from angry to “lmao” 🙂 Did they even ask for the money back? Since there’s not another buyer, just leave the door open that if they should ever sell their house you would still be happy to work with them if the house isn’t sold. You can then apply the Earnest Money if they every get around to being able to buy your house.
I’d like to share this. P & S original closing in January 2008, 2 extensions later, closing date 7/30/08. It was a presale, new construction. We refused to sign another extension and not close on the property, and 7/30/08 comes and the home is not finished. We signed the from from escrow to request our earnest money $40,000 +. The seller refused to sign, wanted a reason why we were not going to close. We retained an attorney, who sent the letter to them demanding our earnest $ for the fact that seller breached the contract because the house was not finished, and because of this we are not going to go through with this sale, and they can resell the home. House gets the Occupancy certificate 8/28/08. No seller release of our earnest money. towards the end of September the house is sold to another buyer for almost $30,000 more than what we would of paid for it. Seller still refuses to release the earnest money and claims they have every right to take all our earnest money. We are filing arbitration this week. All the seller will say is that it is not fair that they had to take back the home and carry the costs. My attorney in all his career has never seen anything like this, and so going forward with confidence of winning an arbitration and having the seller pay for all our legals costs.
Thank you for sharing that. Absent the consent of both parties, the Earnest Money can’t be released. I think the seller was very lucky to have another buyer so quickly in this market. Has the property closed escrow with that second buyer? Not that it matters with a liquidated damages clause. Just curious.
Often the bottom line in these things is why were you willing to close as late as the end of July and not at the end of August? There are many valid reasons like “we had to solidify our housing arrangements before the kids started school and we no longer trusted the builder to have the house ready in time.” What did you do? Did you buy something else? Did you decide to stay where you are?
“I was mad at the builder” is often not a good reason. New construction contracts differ from resale contracts. They often give the builder the leeway to be late and later, and still require the buyer to close within X days of the seller being ready to close.
Looks like your attorney has things in hand. We’d appreciate it if you would stop back when all’s said and done and tell us what happened.
It’s a long story… basically it’s a vacation resort here in Washington State. The project has been delayed all along. Homes and amenities. The developer did not use an MLS purchase and sale, but one drafted by a Washington State attorney firm. The original closing “chapter” of the purchase and sale reads this:
This sale shall be closed on or before__________, provided Seller reserves the right to accelerate or extend Closing for up to an additional 30 days without fee or penalty.
The first extension which was called and Amendment, included this same language “Seller reserves the right to accelerate or extend Clsoing for up to an additional 30 days…”
The next extension was in the form of an Addendum/Amendment, totally different form and contains this language.
“Closing date shall be on or before July 30, 2008″
Note: This Addendum supersedes any conflicting terms in the Agreement, and all other terms of the Agreement which have not been modified or superseded by this Addendum are ratified and shall remain in full force and effect”
Having had 3 attorney’s review (including the one i have hired for this arbitration), have said that this would remove that 30 day window. “Time is of the essence” is also in the original purchase and sale.
Our intentions were to close on this property up until financing issues in June. There was not financing contingency in the purchase and sale to note. I contacted the sales rep for the developer in June and advised them of this problem. I was told to find another buyer if needed, and maybe make a little profit on top of what we paid,(could not advertise this though, and not help from them to find anyone from their end), and maybe they would allow an assignment. There is not language in the purchase and sale that you cannot assign, and from what I have learned, I would have a right to assign per Washington State law, without the language that I cannot. I talked to my parents who said that if needed they could buy the property, or lend me the money to complete the sale. I had heard rumors during this time and before, about the quality of the project, the corners that were cut, and that the developer had problems keeping crews, because he was cheap, ignorant of codes, L & I problems, only caring about making a profit and having a reputation as being ruthless in regards to his business practices. This project has a rental pool situation and ideally we wanted this deal to close by the time summer came around, as there was good rental income to be made. in July we were told that the home would now not be finished until 8/7, and then 8/15, and they sent an extension to sign. I had heard that again at this time, they were having problems with keeping crews, and this was the reason for delays. Looking like the summer rental season was going to be over when we would actually close (when it really would be finished was the question), and also that fact that they were charging a full homeowners dues right away, and none of the amenities that were promised by July (pool etc…) only landscaping and a dock for the boats was finished up until this point, and still that is all that is completed. Phase 1 which was completed begging of this year was supposed to have a playground, beach volleyball court, beach trail, none of which done yet. I was not able to find anyone interested in assigning, as having my hands tied to not advertising was no help. In July we decided that this development was not turning out as we expected, and in spite of knowing that the property was probably worth more than what we were under contract to buy it at, decided it was not a good business decision with all the delays and problems with the development and what we had heard about the developer. We were counting on some summer rental income as well.
With all this said, I have been told there is ambiguous language in this Non-MLS purchase and sale, and typically an arbitrator or judge is going to rule in the buyer’s favor typically. If they had used an MLS purchase and sale and maybe consulted with developers who have experience here, (this is their first project here in Washington), they would not be.
The attorney’s have told me that the contract expired on 7/30 when the home was not ready to deliver, regardless of any reason why we would not close on it. Is not a contract void, if the closing date comes and goes, and there is not product to deliver and no signed extensions. Would anyone be legally required to sign another extension? On top of all of this, the house was resold to a profit of almost $30,000, under 1 month from when the home was finished. As a developer I sure would be more than happy to make a profit like this, in this situation and gladly release the earnest $ to the buyers. Since these events, I have talked to 3 other parties who have yet to close and might be in similiar situations, and all 3 have the same concerns about the project, delays etc… This is showing to me that the developer cares less about how he comes across, and is all about the money.
I think it’s been a great learning experience, and it is so important that you have an attorney review a purchase and sale contract, especially if it is not an MLS contract. When you put down alot of $ upfront, things can change and you need to make sure you (the buyer) are protected as well. There is a Washington State law that says a seller cannot keep more than 5% of the purchase price, of the earnest money. How many people are aware of that?
I thought I’d share an update since I’ve had my day in Small Claims. I was awarded the buyers EM. The judge found that the buyer could indeed have closed on the original 10% down loan (they decided at some point to pursue a zero down loan). They didn’t have my approval to extend the closing for the zero down loan.
Sadly, this buyer admitted she COULD have purchased the home but decided she didn’t want the house when she didn’t get her way (me waiting months for her to obtain a loan other than stated in the contract). She had $120K in the bank and wanted to put zero down. The buyer called me greedy for asking for the EM because she thought she was protected by the loan contingency. HELLO? I’d rather have the house sold than EM, anyday!
These are binding agreements and everyone needs to act in good faith.
Thanks for coming back and letting us know how things turned out, Mitch. For others reading, Mitch’s situation is in comment #64.
This is a very important point which I would think goes without saying, but apparently not. If you as a buyer put 10% down in the Finance Contingency, you can apply for a zero down loan BUT your Finance Contingency ONLY comes into play if you can’t get a 10% down loan. If you get the zero down loan, no one cares that you but 10% in the finance contingency, as long as you close.
Mitch,
Good and righteous outcome. Thanks again for reporting the final court decision. I agree, of course, you’d rather have your home sold than someone’s EM. What did you do? Is it still on market?
I have a question for whomever can help. We were the buyers in a transaction that fell apart one week before closing after the bank received new guidelines that would require us to put 20% down. With closing costs and the 20% that amounted to about 50k. We were not expecting to have to put 20% down. Our contract said we would obtain conventional financing putting the minimum down, and after this change we did not have the funds available in our bank to cover, so the bank denied us. Also, another guideline arrived that said we would have to either sell our existing home or have enough money in the bank to cover 6 months worth of payments for both our existing home and the new one as well, more money we did not have. We tried to go FHA but with our debt to income ratio at 48% and the FHA rule 43% we could not go that way. Our bank issued us a denial letter. This all happened one week before closing, after the inspection, after the sellers apparently completed repairs. The sellers will not release our earnest money, and it has been placed in an interpleader account. After contacting a lawyer, we are told we will have to go to small claims to get our earnest money back. The lawyer seemed to think we were entitled to the money back saying the repairs we value received in their home. Do you think we are entitled to our money back, and are the sellers being unreasonable? All of the bank changes took effect before our closing and the bank is telling us that they just got the notices. It is through no fault of our own. The bank says we went above and beyond to try to get financing, that we didn’t have to even try to go FHA as it was not in our contract.
Jessie,
Do what the lawyer says. Go to small claims court. No the seller is not being unreasonable, as you did agree to the downpayment as “the minimum”. I never write vague language like that in my contracts. Turned out “the minimum” required was 20%. You should have put the maximum that you actually had…say 10%. It would have been clearer.
Still, I agree with your lawyer that if you go to Court, recognizing that the seller has a right to be angry and the world going to hell in a handbasket has pretty much made everyone angry, but that’s not your fault…you will probably win. Remember, the seller is not wrong…the rug just got pulled out from under everyone by the mortgage crisis. No Victims; No Villains…just how the cookie crumbled.
No finger pointing. No one could have predicted or prevented the outcome is the best defense. Hell, not even Bernanke and Paulson saw it! How could you have prevented it?
You can setlle or take your win or lose chances. Even if you take it to small claims court, they will likely ask you before the hearing to go off into a room and work it out with the seller.
They usually say “you both think you will win…but one of you will lose, for sure. So maybe you want to settle this before one of you is the loser.”
I also have another question-thanks Ardell for your response. The sellers realtor contacted our mortgage loan processor and suggested another place to go to receive financing. She did give us the name and number of the other place, but we didn’t contact them as we felt that running all over town would not change the fact that they have these rules out, and they are affecting all banks, and we only have so much $$ with which to close a loan. Our realtor made a comment that we didn’t try hard enough by trying to get “alternative financing.” It really hacked me off, as we did try and called several banks and they seemed to all have the same info, we just didn’t have them run our credit, because they verbally told us the same info our bank told us. So with that we do feel we made a good faith effort… does it sound like it to you?
Jessie,
The only ambiguity in your scenario is that your contingency was based on your paying “the minimum” downpayment. The contingency does not cover your not having enough “cash to close”, and that is really what happened.
If you had 10% to put down, had 10% down in the finance contingency and then they upped the minimum to 20%, you would clearly have been covered. The problem is you agreed to pay “the miniumum” and the minimum required ended up being more than you had. Technically not covered under most finance contingencies.
Stop worrying about what everyone is saying because the bottom line is that you likely are better off that the lender will no longer lend on the previous basis. Your ratios are too high.
Keep it simple. At the time you made the offer, you were qualified. By the time it was ready to close, the banks ALL changed their approval criteria and you no longer qualified. Wasn’t your fault. Anyone who watches the news knows that. Hopefully the judge will know that.
If you want to settle with the seller, since they were inconvenienced and it wasn’t their fault either, I’d recommend trying that. Have they offered a compromise to keeping it all? How much is it? Generally that IS how these things are resolved. Once you get into Court, there’s no telling what will happen. Many times Judges “relate” more to owners/sellers than buyers. It could go either way and the “minimum downpayment” doesn’t work in your favor.
They have not offered anything-they just flat refused to return it and when we called our realtor to ask specifically why they would not return it she would not elaborate. She had said in a previous conversation that day that it was because of the repairs the sellers completed “specifically” for us. All of them were either safety issues or structural. While there were more repairs, we only asked for those things. (dryer vented into the attic, electrical issue, and support for a joist in the foundation) She pretty much ended the conversation when we asked her what was going on with our earnest money, and said it was in the interpleader account, that she wasn’t getting in the middle of it. The amount is $1000.
Jessie,
If your earnest money is for $1000.00 (I don’t know where you are located) and your transaction is in Washington State there is a high likely hood that the money will never be seen again. The cost of interpleading to the court will eat it up and the only person(s) really who will receive YOUR money is the Attorney(s) within the interpleading system and the court.
This has been the experience of our office in interpleading earnest money disputes for small amounts. Sorry that your transaction didn’t work out.
That is how it works. The repairs have nothing to do with the Earnest Money really, but it is their reason for not wanting to sign off on it. It’s a common scenario, really.
Go to small claims ASAP as the attorney advised. If the interplreader gets assigned to an attorney an amount like that will get absorbed in legal fees.
Tim typed that as I was typing mine. Either try to negotiate a $500 split or file something in small claims ASAP. Otherwise neither you nor the seller gets it.
We are in AR. We can file the small claims and represent ourself in court. We called the real estate commission and they said every county is different, to check with our district court clerk. She didn’t know what the interpleader account was, and I tried to call my realtor and she will not answer or return my call. The lawyer I talked to yesterday referred me to another one who would better be able to help me, and I am talking to him tomorrow in a free consultation. We do not know where the interpleader account is or exactly how it works thanks to our realtor bailing on us. Hopefully tomorrow I will get some answers. Thanks so much.
I’m going to try to give you some guidance on this, so you get your terminology down a bit better before meeting with the attorney. I have never worked in AR, but have worked in 5 States, so maybe some of this will be helpful.
I would say don’t worry about what “an interpleader account is” as that is an insider term for what happens to Earnest Money when the parties don’t agree on its disposition. When the escrow holder does not have clear direction from the parties, they can’t just hold the Earnest Money indefinitely. So there is a provision for THEM (not you) to enter into an “interpleader status”. That is not really about you or your case.
Interpleader: “A procedure to determine which of two parties making the same claim against a third party is the rightful claimant.” That is what the escrow holder would do as the “third party”. You are not a “third party”, you are one of the two parties. So I don’t think you even use the word “interpleader” in what you are doing. It might confuse everybody if you do.
You are filing a suit against the seller to release the Earnest Money, not an interpleader action. Your suit is about two parties, you and the seller, and you are asking the Court to award the Earnest Money back to you based on the terms of the contract. It’s that simple. The Court says yes or no. If the Court says yes, you get a Court Order saying that which you give to your agent’s broker and/or to whomever you made the Earnest Money check payable to in the first place. That gives them the authority to release the money to you, and the “interpleader” action becomes unnecessary (for them).
In many States there is a limited amount of time that an escrow holder can hold monies after a contract is invalid (in many States that is 30 days). After that they have to notify the real estate commission or someone…but again, that is all about them and what they need to do, not you.
What the attorney advised you to do, and Tim and I agree, is forget about the interpleader stuff and go directly to the issue at hand. Sue the seller for release of the Earnest Money in small claims court. Ask the attorney if the person you made the check payable to needs to be part of the suit. Last I saw one, that person was not part of the suit. Seller sued the buyer. Seller won. Seller gave the Court Order to the person holding the money, and they received a check. That’s how I think it works here and in most places when a small claims action is involved.
The person who holds the money (in an escrow or interpleader account) needs some direction to release it. They either need you and the seller to agree in writing about its release OR they need a court order stating who should get it.
Keep it between you and the seller and sue the seller, not the person who is holding the money, unless this next attorney you visit recommends otherwise. Let us know what happens.
I spoke to 3 attorneys and all 3 said we were entitled to our money back regardless of how the sellers “feel.” They told me that in the contract it doesn’t say if you feel like giving the money back. It is very specific and they should have returned it promptly as the contract states. That aside, the 2nd lawyer I talked to asked me if they had cashed the check. I thought for a moment and said no, it has not cleared my bank. He told me to put a stop pay on it immediately. To let them file for small claims if they felt they were entitled and to take my contract to the judge and show him where it says I get my money back if I am uable to get financing, and the denial letter. The 3rd attorney agreed that was good advice. The contract said for the seller’s agent to promptly deposit the check within 3 business days. It has been 30 days. If there are any updates to my story I will post them.
WOW! They didn’t cash the check (not the sellers but whomever was holding the escrow monies). That’s a new one. My guess is one of the agents is in big trouble, but possession is 9/10ths of the law. That was pretty simple. Many lawyer’s later and the money never left your account? Hard to believe.
Seriously, given your original statement “The sellers will not release our earnest money, and it has been placed in an interpleader account.” it never dawned on me that you still had your money in your own account.
I think some agent might end up eating this–or maybe the escrow. Whoever didn’t deposit the money.
BTW, I vaguely remember from law school that an oral stop payment is only valid for maybe 30 days or something, and that you actually need to visit the bank to sign something for it to be permanent.
I’d definitely go to the bank and do a written stop payment on it, AND I’d make a note of which attorney told you to do that and possibly get that from him in writing.
I did go to the bank and do it in writing. It never ocurred to me that they hadn’t deposited the check until he said that. I can’t remember the last time I put a stop pay on a check. Probably never. Of course, I also not used to getting into situations where people don’t do what they are supposed to do either.
I am going to go to small claims court in Washington State for a 5000. dollar ernest money dispute on my personal residence. I am the seller and the property was under contract with no contigencies for approx. 20 days with all appropriate forms completed ie…rmls p/s agreement and property disclosure statement the buyer changed his mind and the money is held by the title company.
my question is my wife and I are on the contract and so are the buyers as husband and wife. do all names go on the small claims form and do all four need to show up in court ? Thanks, Jerry
hmmm…the lawyers around here will have my head if I answer that. I think you probably know the answer to that question. What reason mght there be not to put them all there?
I can tell you that I have been to one of these in small claims court, and the buyer did not show up. The seller did not automatically win due to that fact. The judge heard the whole case and took the evidences, and the seller did win. Had the buyer shown up, it could have gone the other way, because the buyer was covered under the finance contingency. The guess was he might have had a warrant outstanding, or something similar, and was afraid to come to a court room. But it wasn’t an automatic, “buyer not here so we’re done with this”. Surprised me.
Thanks ARDELL, no finance contigency and no home inspection and I did follow through with two items on the p/s agreement addendum and kept receipts. The only possible problem is that I did use an abbreviated legal description, but it was enough for both of us to get preliminary title report.
THhanks, Jerry
Jerry,
Here’s what happened in that Court Room. I think you are dealing with “a court of equity”, which means the judge can bypass the pure contract issues and move to “an equitable response”. You’ll have to get legal advice on that one, but from what I saw first hand, that is what the Judge did.
The buyer was hands down the winner by contract. The Seller came and told their sad story of “damage” and the Judge awarded the “damaged” party, contrary to the terms of the legal contract.
Saying “I want and should get” the buyer’s money, is not enough. You (may) have to explain how you were damaged to the tune of $5,000 by the buyer cancelling, to win. Why do you want the buyer’s money? The REAL reason…not just because on form X on line X you “should” get it.
Judges don’t like to be inequitable, even if the terms of the contract are “liquidated vs real” damages. Be sure to have a sad story to go with that contract mumbo-jumbo.
Let’s say the buyer thought they were getting a rate of 5% and cancelled because the rate was 8% when they “changed their mind”, and they wouldn’t close at 8% on the mortgage. The Judge may say “I don’t blame you” for not wanting to close…then their sad story may win over your “but the contract says” story.
Capish?
Jerry,
Another thing…when you get there, before any cases are heard and before the Judge enters the Court Room, you likely will get “a speech” from a negotiating team.
They say (paraphrasing) “everyone in this room thinks they are RIGHT and are going to WIN. Without exception. No one would be in this room if they weren’t at least 80% SURE they are RIGHT and are going to WIN. HALF OF YOU ARE WRONG! Because for every two people in this room…ONE is going to LOSE! Once the Judge rules…you lose!
Now who wants to come into a different room and try to settle this before the Judge comes in?
Before you go to Court, decide if you are going to leave and try to get $2,500 vs. stay and get $5,000 or zero. NOW, if you say you are likely going to go in the room and try to get half…then don’t wait for court…go offer that answer to the buyer now.
Thanks, I was unaware of the court of equity. I assumed a judge would just stick to the contract. the reason the buyers backed out was because they researched the farmland property across the street and found out it was in a proposed UGA which we were unaware of. i feel they should have done their research or a feasibility study before tying our house up for about 20 days. during which approximately 15 sale pending flyers went out. Also, there was another party interested in our house but were waiting for their own house to sell. We got a call from them wanting to put an offer down on our house but we had to tell them that our house was already under contract with someone else. we learned they bought another house soon after. Because of this, and the market decline, we find ourselves owning two homes. we abided by the contract having the septic pumped ($500). We also rented a storage unit to begin moving – as per contract so the buyer could begin moving their belongings in. the buyer contacted the title company and signed a recision form requesting the entire earnest money to be returned to the buyer. The buyer then called us and called me a liar -that I had known about the neighboring property, that we withheld information just to get a sale, and questioned my integrity. Because we could have been damaged far beyond the $5000, I am reluctant to negotiate a split. Thanks, Jerry
I am a buyer. My contract did not perform due to financing contingency. The house would not appraise and the bank refused financing (price 435.000 with 140.000 down). Our contract (Texas) states that in such case either party may request releasing the money in writing and the other party may object within 14 days. Escrow agent acts as an intermediary. We did request the money in writing and received no objection. We called the title company (escrow agent) and he told us that the other party feels entitled to this money as well. I emphasize, I was never notified of any objection or EM release request from the seller. We tried to contact the sellers but they did not pick up a certified letter from the post office. Looking at the language of the contract I feel that the seller is no longer a party in this dispute and intend to take title company to the small claims court to regain my earnest money (4000). Inaction on the part of the seller tells me that they are not interested in our money but are not going to make things easier for us. Does it make sense? I would appreciate any advice.
Andrew
Jerry,
Looks like a lack of full disclosure to me. Let us know what happens. Check with an attorney about that Court of Equity, I’m just telling you what I saw and what I think…and I’m not an attorney.
Not cut and dry there, Jerry. I’d be giving the money to the buyer on that one. Get an attorney and if the attorney thinks you might lose, then try to settle.
Andrew,
I don’t know much about Texas. The escrow company can’t just give you the money without instruction from someone. In some states that is the Real Estate Commission, in others you have to go to small claims court. But no…just because the seller is doing nothing doesn’t mean the escrow or Title Company or whomever, can just hand the money over to you.
Whoever has the money should be able to tell you what you need to do next. Sometimes the escrow holder has to get the instruction, sometimes you do. That vary’s from state to state, and there are often costs involved that are deducted from that $4,000.
Ardell, Full disclosure? wouldnt that would mean the seller have to know about an adjoining property being in the UGMA. Does not that responsibility belong to the buyer or his agent to research. I re- read the contract and the disclosure statement and dont see anything that applies to zoning of adjoining property.
jerry
Jerry,
It is usually based on what you should have known, even if you didn’t. The seller disclosure form is so you can reveal that which is not readily seeable by a prospective buyer. Seems to me you will have a hard time proving that you couldn’t have known about “an adjoining property”. Could you have known?
IF it happened AFTER the property was in contract…well, then maybe. But did you as an adjoining neighbor get anything from anyone…hear anything from anyone…before the buyer made that offer?
How does that new information create negative appeal for your house? Can you prove it had no bearing on why you are selling, if it does have negative consequence?
Jerry,
How about your agent? Could/should they have known?
Ardell,
not readily seeable to a prospective buyer. doesnt that apply to the said property ? or possibly not informig buyers of a hog farm or toxic waste dump that you knew about- not some long range city plan. the transaction was done with out agents . I suppose you one could say we should have known about the 100 acre corn field being in the UGA But I think that burden should fall on the buyer. When the buyers are looking at properties within a half mile of a major exit and are concerned about growth they should probably do their homework. How is one to know what a buyer wants in a propetrty?. Isn’t that what feesibility contigencies are for in a contract? A few agents have told me that the proximity to the UGA would have a positive impact on future value. Thanks
P.S. the property was shown by approx 15 agents not one of them ever mentioned the UGA and the owner of the cornfield was not even aware of the zoning!
When King County enacted the UGA, homeowners were notified if their property fell within an area where the UGA was being applied. The information about which areas are affected can also be found on the King County website. I think both parties should have known about this as it is quite public information.
Here is a link to the UGA boundaries.
http://www.kingcounty.gov/property/permits/gis/LandUseAtlas.aspx
Jerry,
See a lawyer, pronto. There’s been a recent change in that, and you may have used an outdated Seller Disclosure Form. If there were no agents, how did you get a Seller Disclosure Form? I’m on the buyer’s side on this one, so that tells you something. Doesn’t mean I’m right…but it should mean the issue is not as black and white in your favor as you think it is.
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it was a current disclosure form and quite easy to get. after reading other post and some preliminary legal advice I am quite surprised you would side with the buyer on this one- a cash offer with no contingencies straight foreward contract. It makes me wonder how a seller would ever be entitled to the EM . Anyway thanks for your opinion, I will most likeley try in small claims if I cant negotiate a compromise with the buyer.
I would of loved it if the buyers would have written their own “seller disclosure form” maybe they would of thought more about what he wanted in a property and any potential adjoining property issues could have ben answered up front and saved us all a huge hassle.
jerry
you solicited the advice jerry. don’t be mad just because it isn’t what you wanted to hear. sounds to me like you already had you mind made up that you are in the right on this one.
mad?
jk,
I don’t think Jerry’s mad, and he indicated in comment 114 that he is willing to compromise with the buyer.
Jerry,
If you used NWMLS contracts, the entire contract could be invalid if neither of you had agents. They are only valid for members of NWMLS or those who procure them by NWMLS rules, such as attorneys who buyer them from NWMLS. A lawyer for the buyer might use that, so I’m giving you a heads up to check that out.
I’m wondering why the buyer had no contingencies? No inspection? No finance contingency? Why wasn’t the buyer better protected by the contract? Who wrote that contract with no buyer contingencies?
JK mad? no. ARDELL has made some good points and I appreciate her input. may not be what I wanted to hear and the dialog helps me to decide if I am being unreasonable since I have not been down this road before. Yes, I solicited the advise, is that not what this forum is for ? but mad. no.
jerry,
It’s a flat medium. Sometimes people pick up the wrong signals. Happens to me all the time 🙂 Don’t worry about it. I don’t think you were mad, and I think the exchange at least helped you think things through.
If you really didn’t know anything about it, I wouldn’t worry. If you did know and didn’t disclose it, or thought it didn’t matter, then I think the buyer is at least half right. If the buyer had no contingencies because you wrote the contract for him, or only gave him the pages without the contingencies, that could be a problem for you.
jk and Jerry,
If you are still around, what do you think are the pros and cons of being in the UGA?
Jerry,
I once had a situation where the sellers didn’t know they were in a flood zone. They owned the place for 40 years and the flood zone map changed while they lived there. Nice old couple. The buyer and I figured it out before closing. It all worked out OK, but I had them amend the Form 17 to cover all parties.
ARDELL,
Thanks for the heads up. yes it was a NWMLS contract. The contract was written together by both seller and buyer. He was a cash buyer and he was so confident about the condition of the house he chose not to have an inspection, even after I suggested one. Seemed kind of strange . If the other potential buyers (who purchased another home during the 20 days our home was under contract) would of bought our home I would have gladly gave his EM back. The situation has been very frustrating for all. Thanks
I don’t think the Judge would pick up on that, if the buyer doesn’t have a lawyer. But it wouldn’t take much for a lawyer to come up with the “invalid contract” issue, as they are for use only by NWMLS members. I think they call that forms derived by “ill-gotten” means. “acquired by improper means”.
Even lawyers, and possibly only lawyers, have to buy them. They are produced for mls members and paid for by mls members. Not just the papers themselves, but the lawyers who update them continuously. You basically “stole” them from the mls, I guess, even if an agent gave them to you. In fact the agent who gave them to you is likely subject to a $5,000 fine for doing so.
So if we go back to your original comment, “a contract is a contract” theory…this may not be a contract at all. Something else to think about.
Jerry,
My point is, if the Judge feels sorry for the buyer and feels like he was duped in any way, there’s a way for the Judge to rule in favor of the buyer. Are you a lot older and wiser than the buyer?
Like I said many comments ago…every one in the Court Room is abslutely sure they are right and going to win. Your buyer will feel that way too, just as you do. Rarely will the Judge split the money. One of you will lose.
ARDELL,
actually the buyers are roughly the same age, professional people and probably more educated than myself. sounds like a compromise would be better. move on and not stew about this any longer. even though I still feel I am right, it may not go my way. Thank you so much for talking to me, I appreciate your straightforeward advice.
On a sidenote in my area the market has droped a good 15 percent .the house is a beautiful property and is sitting vacant. I now need to make a decision to rent the home for a few years and wait for the market to rebound or sell the home at a reduced price. We both have good stable jobs , are financially secure and are able to make the payments.
I personally feel it may take awhile for prices to return to their previous levels and renting could cause a whole new set of problems. any thoughts? THANKS
Jerry,
My thoughts were on the front page of the PI yesterday, above the fold to the right of Obama’s stimulus package 🙂 But seriously, my thoughts for specific sellers are individual and property specific and client specific based. If you are still thinking For Sale by Owner is best for you, good luck. If not…give me a call.
Hi Jerry,
Here’s Craig’s answer to the NWMLS forms issue. It is NOT legal advice as he is AN attorney, but not YOUR attorney 🙂 But thought it might be of some use to you in helping you sift through all of the information you can.
“As for your question about a FSBO transaction where the parties inappropriately use an NWMLS form contract: Without giving any specific advice, I believe that this probably would NOT give rise to any basis for walking away and getting a return of the earnest money. The means by which the parties obtained the form contract is not relevant to a determination as to its terms and binding nature. The NWMLS could certainly go after either or both parties, but as between them I think the issue would be irrelevant.”
It was up on the seller disclosure post that I asked the question of Craig, so I brought it over here for you just in case.
hi we were supposed to close on april 7 everything doing smoothly we always get in touch with our mortgage consultant
i want my earnest money. the loan process took the bank to long and when fha came back with appraisal 13,000 dollars less than my offer i opted out. the seller wrote on an addendum which i did not sign that i would not get earnest money. wrote in after i signed it. the seller us bank keep the money and i can’t afford a lawyer. if you can offer advice i would appreciate it.
Jim,
Sorry I missed this yesterday. I don’t know what the “must appraise” clause says in your contract. I don’t know how well the finance contingency protects you. I don’t know if you followed the appropriate written notifications when it did not appraise. You can’t just “say you don’t want it now”…there are things you need to do, and it may be too late for you to do them.
If you don’t have an agent, you clearly should have had one. I don’t always say that, but you should not be buying a house without an agent as you are not responding to this issue in the appropriate way. It is not likely that you can enter into a contract without a lawyer and/or an agent. Don’t do that again.
Contract provisions regarding the timeframes you must act in regarding your loan and appraisal are very, very time sensitive and complex. You need someone there who is reading the contract. You can afford an attorney for a short consult…go do that. If you can’t afford that, you shouldn’t be buying a house.
Sorry to be so abrupt and even rude, but you don’t have much time. These matters are very time sensitive.
As to the seller adding that after you signed it, you simply do not understand the sequence of offer, counter offer. You signed it saying you want the money back and they changed it to no you don’t get it back and they signed that. I have seen an addendum look like that before. I totally understand what you are saying, and you need to do somethings to legally protect yourself. If you have an agent they can do what needs to be done. If you don’t have an agent…why not…and get a lawyer involved, pronto.
Jim,
Usually when it appraises lower there is a renegotiation. Sometimes the seller has the right to lower the price to the appraised value, and if they do that, you can’t “opt out”. As I said before, I don’t know what your contract says, but I do know your are not responding appropriately to the situation at hand.
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had a question about earnest money. I am the seller, i entered into an agreement with the buyer, to purchase my property as-is. The buyers were pre approved with FHA, they put up $500 earnest money, had the house inspected and the title office called me and said they were setting up the closing paperwork, the real estate agent on both sides said that the house was sold, there was a sold sign placed on the house, the contract said we had to be out of the house the date of the closing which was April 15, 2010. Here it is April 14th and i find out today that they defaulted on their loan, they evidentally lied on their FHA application. Meantime, i have already began to move, i have spent over $3,000 prepairing for the move, am i entitled to the earnest money???
Hi Trish,
I’m in L.A. on vacation this week, but will try to answer briefly. If what you are saying turns out to be fact as to their being denied their loan because they were giving FHA fraudulent info, then likely yes, you would get the Earnest money.
I heard of a situation recently where the buyer altered and falsified their paystubbs and that loan was denied the day before closing, as yours was, and the seller was given the Earnest Money. The buyer did not even try to fight that and signed the release of Earnest Money to the seller.
However you say “evidentally lied” and I don’t know if that is fact and why FHA denied the loan at the last minute. The first step is usually for your agent to sent a release of Earnest Money to you to the Buyer’s Agent for the buyer to sign it. If the buyer signs it, you are done and get the money. If they refuse to sign, then you will likely need a letter from their lender stating that they lied and falsified information in order to proceed.
Do let us know how things turn out! Keep us posted on the steps you need to go through, to help other readers. We really would appreciate that.
I have a property FSBO. I received an offer, I accepted the offer, I requested $1,000 earnest money, gave the buyer a signed receipt and had the buyer sign a short note stating that he agreed to by the property for $xxx “as is”, the balance due was $x, and that closing would be scheduled as soon as possible. We agreed I would talk to my atty. and get back to him the next day. I sent a more extensive standard real estate contract, which he didn’t like, and he had an atty. prepare another contract, adding multiple contingencies which were not part of the original agreement. When I refused to accept the contingencies, he refused to purchase the property. While I was deciding what to do about the earnest money, he stopped payment on the check, which I had already deposited into the bank. Should I take him to small claims court, and will I likely prevail in getting the ernest money back?
Wow Jake! I can’t believe you want to keep that person’s money! That’s a classic example of why someone should not buy FSBO! There was obviously no meeting of the minds there…you both wanted a different contract than the one you both signed. I say give the man his money back and start over.
This is also an example of why the check should have been deposited with a neutral third party (an escrow company) and not with the seller’s account.
Is it normal with a FSBO for the seller to deposit the earnest money check in their account?
Thanks so much for you helpful advise. I wasn’t really seeking advise on the merits of FSBO. I believe I understand the pros/cons.
Jake,
But did you consider those pros and cons from the buyer’s side? I think everything went perfectly well for you…too well. But it looks like the buyer got bulldozed in the process.
Rhonda,
I didn’t read into that that Jake had the Earnest Money in his account. He could have given it to his attorney or to escrow.
Jake, you said you “received an offer”. Who wrote that offer for the buyer?
The buyer agreed to and signed the purchase agreement. Nobody got bulldozed the buyer was the one who was pursue me, bith interms of looking at the property, making an offer on the spot, and wanting to close ASAP. I was lefting holding the bag, as based on his sgreement to purchase the property, I cancelled a showing with another buyer, incurred modest legal expenses consulting with my atty, rented a moving truck and a storage space and spent hours moving furniture out of the unit before he advised me that he “had changed his mind”.
The irony for me, is that had he simply called me a day or two afte I accepted his offer, I would have gladly returned his $$ and wisheed him well. The problem I have is the way he handled the whole process, dragging things out, and waiting until after I had incurred expenses and moved furniture to tell me he would only do the deal if I agrred to add contingencies which I had already told him I would not go along with at the price he offered. His big “selling Point” if you will, was he wanted to buy the unist “as is”, I could just walk away and he would take care of all repairs. So I accepted an offer based on that understanding. Almost a week later, he lets me know that he will not do the deal with adding an inspection contingency and a contingenct on the sale of his existing home. I’m not suggesting the an inspection contingency is a bad idea, quite the contrary, I would never buy a home with doing an inspection. BUT, that was his big point….he wanted the condo ” as is”, cash deal, and he wanted to close in less than two weeks. Before he pulled out, he even asked me if he could have a key to the unit so he could beging doing some renovations ASAP befor e we closed (Remember I only had a $1000 deposit), and he was highly offended when I said that would put me in an awkward position, but I would be happy to expedite the closing as long as he would give em some time to remove the furnishings.
No disrespect Ardell, but if you knew the whole story, I think you would seeit differently. At the end of the day, I have decided to let it go. Life is too short to go after the guyfor a few hundred dollars in damages, but I think his behavior was deplorable. I appreciate that business is business, but I also assumed that his word meant something. In this case, I guess not…..
Jake,
Thank you for coming back and expanding the information of this situation more fully. Clearly giving a buyer a key prior to closing is most always ill-advised, especially for the purpose of beginning renovations.
For the benefit of other readers, I would like to point out some red flags.
1) A cash purchase generally does not have a minimal deposit of only $1,000. While a smallish deposit is often accepted, that is usually because the buyer does not have much money, is financing his closing costs and putting little or nothing down.
2) Every buyer should do a home inspection prior to closing and every seller should let (and even insist) on the buyer having an inspection.
The problem with “as-is” is it leaves the seller open to describing in full any potential defects to fully define what “as-is” means in this situation. “as-is” means without repairs to…what? The inspection defines what problems and potential problems the buyer is willing to assume in that “as-is” agreement.
It’s OK to not have a “home inspection contingency”, meaning the amount offered means no further negotiation. But there should still be an inspection so the buyer can decide if they want to close or lose their Earnest Money. If the inspection reveals $15,000 worth of repairs, the buyer might choose to lose the $1,000 rather than assume $15,000 worth of problems on an “as-is” sale. So an inspection should still be conducted prior to closing even on an “as-is” purchase and sale agreement.
You mention in the new facts that this is a condo. Generally the buyer and seller cannot waive the buyer’s right to cancel after receiving the Resale Certificate, as I believe that right is granted under Washington Statute. So if the buyer cancelled before receiving the Resale Certificate, then he likely had that legal out.
Did you give him the Resale Certificate at time of offer? Was that completed by the HOA as to reserves etc. within 30 days of that purchase and sale agreement?
I paid $750 in earnest money before I was allowed to have the inspection done on the home. The house has mold, a serious plumbing problem, roof damage, amongst being a wreck cosmetically. I want to back out of the deal knowing these things, am I entitled to having my earnest money returned?
Dana,
I don’t know where you are. If you are in this area, and fill out the correct form to cancel, in the time frame allowed in your inspection contingency, then yes. The form has to be written by your agent…so get on that ASAP.
Ok – here’s an escrow question I could use help with…
We’re selling our NJ home and we just found out a week after attorney review ended, that our buyer never deposited their good faith money into escrow with the agreed upon title company. Per the contract, they were supposed to make a second deposit a few days ago which also did not happen. We were notified today that they just deposited the first of the two deposits this afternoon…but the second is still outstanding. Would this be considered a breach of the contract? What recourse (if any) would we have?
The second concern we have is that the buyer is not going to secure their mortage approval by the agreed upon date (which already includes an extension). Per the contract, the agreement is null and void if the buyer doesn’t secure finacing…assuming they made an earnest attempt to do so. The contract states that the buyer will secure a 30 year conventional mortgage. I’m hearing from my realtor that they are looking at possibly going to an ARM of FHA loan…and that is contributing to the delay on their end.
I am not confident that our buyer is operating in good faith to honor the terms and deadlines outlined in the contract. Considering the fact the buyer did not deposit his money on time (and some is still outstanding) and he is likely not going to secure a loan by the deadline (largely because he decided to switch the type of loan he was going to pursue)…If he flakes out, are we entitled to any of the escrow money…or are we out of luck? The money in escrow is substantial (initial deposit 25k…second still outstanding deposit 35k).
Paul
Paul,
I’m going to answer this honestly.
My first reaction was “Great, they made the first deposit”. If they were not acting in good faith, they would not have done that.
My second reaction was “Great, they are taking the time to get financing and being flexible as to getting whatever financing they may qualify for…good. Shows tremendous good faith as if they did not qualify for one they are open to others.”
So buyer side sounds pretty good and $25,000 first deposit and $35,000 second deposit sounds enormous and pretty much ridiculous. So it makes me wonder who is looking out for this buyer? Where is your agent? Where is the agent for this buyer who obviously needs some assistance?
Remember, someone else wrote that contract if the buyer has an agent, and probably filled in all those blanks with things the buyer didn’t readily understand. Probably going on what the lender told them to put there. So don’t blame the buyer for how the contract and finance contingency were written. Stop trying to take his money and be a little grateful that you have a buyer in this market.
That’s all I can say since you are in NJ and you didn’t say North Jersey (which operates like NYC) or South Jersey (which operates like PA). If you are in North Jersey there is usually no “time is of the essence” clause, and the answer would be different than if you are in South Jersey.
Are attorneys handling the paperwork and closing like NYC?
In any case, I sincerely doubt that any buyer would hand over $25,000 (the norm here is max $10,000 TOTAL Earnest Money) if he were not sincere. You sound really mean. 🙂 Just my reaction to what you have written.
Personally I feel badly for anyone who is doing everything they can and loses $65,000, which is what you are trying to take from them. If you get it…please don’t tell me. That’s a lot of money for someone to lose for trying to buy your house. If it is an FHA or even eligible for FHA, that amount of Earnest Money makes no sense whatsoever.
We are in South Jersey and there is a section of the contract that acknowledges that we all know “time is of the essence”. Does that change things?
Sorry if I sounded mean. I have no interest in taking their money unless they fail to close. They don’t seem to be trying at all to hit any of the deadlines outlined in the contract. The deadline for the initial deposit, the second deposit…and probably the deadline to secure the mortgage are all going to be missed. The buyer/buyer’s agent are the ones who put those deadlines in the contract…so for them to be operating in way that suggests that time is NOT of the essence to them makes me concerned. We have to commit to a rental property and the longer they drag this out, the more tenuous our situation becomes.
Thanks again for the feedback!
Paul
Paul,
“We are in South Jersey and there is a section of the contract that acknowledges that we all know “time is of the essence
Ok -here’s the latest on our attempt to sell our South Jersey home…
A refresher:
-Buyer did not make his 1st deposit into escrow on time.
-Buyer did not make his 2nd deposit into escrow on time.
-Buyer did not attempt to get a mortgage by the agreed upon date.
-There is a “time is of the essence clause”.
Our agreement states that the buyers would obtain a 30-year mortgage in BOTH their names. They applied for a mortgage using only one of their names and got denied.
Our buyers have violated every deadline and have not properly tried to obtain their mortgage as per the terms of our agreement. At this point, are we likely to be awarded some (if not all) of the money in escrow (assuming this deal is dead)?
Thanks again!
Paul
Paul,
Bottom line to all that is that the buyer doesn’t qualify for a mortgage to buy your house. It doesn’t seem to me that any of those “deadline” issues change the fact that the buyer just doesn’t qualify to buy your home. IF the buyer’s finance contingency says he gets his Earnest Money back if he cannot get a mortgage, then those other issues may not apply.
The deposit issues are usually not tied to the Finance Contingency and are reasons why you could have put the property back on market on the day after the deposit was due and not received. Applying in one name vs two was likely the lender’s suggestion, and often is the lender’s recommendation if one person qualifies more than the other as to income and credit score.
In NJ it is not uncommon for a Finance Contingency to carry all the way to the end. In any case, it boils down to what the requirements are of the Escrow Holder to release the Earnest Money to you and or the buyer. What are they saying as to what they want to do with the Earnest Money? I assume the buyer wants it back and the escrow holder won’t give it to them if you don’t sign off on that, which means you likely will need an attorney. Your contract also likely has a mandatory mediation clause, so mediation regarding who will get the Earnest Money is likely the first step.
Personally (I think you can tell) I think a Finance Contingency in its very essence means if the buyer did everything to try to get a mortgage and could not get a mortgage…he gets his Earnest Money back.
Let us know what happens. If it was $1,000 bucks or up to $10,000, I might feel differently. But I don’t think anyone should lose $60,000 because they couldn’t get a mortgage. The big question is why did everyone think they could get a mortgage, and then turn out to be incorrect? That seems very odd. Seems whomever told them they could qualify to buy your house in the first place, and was wrong, is the person who created the damage.
Sad all the way around. I appreciate your keeping us posted. Usually the reasonable party wins. Have you tried offering part of it back to see if they will sign off on giving you any of it?
From what I’m told by our realtor, the lender gave one of the buyers a pre-approval letter without so much as running a credit check. I was also told that the lender thought the 1 buyer would be approved by himself without the second name…but he was wrong. Apparently, the buyer who did NOT apply for the mortgage has better credit than the buyer who DID apply…so I don’t know why that person did not apply as the terms of the contract state that he would.
We definitely feel like we were wronged all the way around on this transaction…by the buyer missing every deadline and not applying for the mortgage with both names as per the terms of the contract…and by the lender who clearly did not go through the proper steps when issuing the pre-approval. We’re trying not to be “angry”, but we feel like we’re being steamrolled by incompetence…and to just shrug our shoulders, say “oh well”, and release all the funds back to the buyer just doesn’t seem fair. We would be open to negotiating an amount to release back to them with us keeping the balance. Have you seen many of these things go to mediation or trial…and what was the outcome?
Thanks!!
Paul
A buyer should lose their Earnest Money if they changed their mind about buying the house. If they sabotaged the mortgage process because they changed their mind about buying the house, then they should not get their Earnest Money simply because the mortgage was denied.
As I noted before, it doesn’t seem like the amount of the Earnest Money was the “customary” amount. How much was the contract sales price? Did the buyer have an agent? If your agent was acting as their agent…that could be a problem if it goes to court.
The norm where parties can’t agree is that they split it IF it is the customary and not excessive amount. Here there is a cap by law as to how much a seller can receive in forfeited liquidated damage. For a buyer to lose that much money, $60,000, the price would have to be $1,200,000.
The sales price is 295k and the buyer has their own agent.
Thanks for the info regarding caps on the amount we may be able to receive. Would you know if there’s a cap here in South Jersey?
Would not applying for the mortgage using both names (as per the terms of the contract) qualify as “sabotaging” the mortgage process on their end?
Thanks!
Paul,
That’s where you lose me on this. Keeping 20% of the purchase price is just excessive anyway you slice it. It’s been a long time since I worked in Jersey, but requiring 20% Earnest Money can’t possibly be the norm on a $300,000 home. Not remotely feasible. 20% down payment…yes. 20% Earnest Money…no.
I don’t know if there is a “cap” there, and have not seen it in other areas. But I would suggest you put your home on the market, sell it, and then charge the buyer the difference between what you get and what they were going to pay. Even though Earnest Money is not for “real” damages, having “real” damages will help support your claim. If you decide not to sell it at all…the decision maker may view that as having had no damage besides the aggravation.
Regarding the one person on the loan vs. two, no I don’t view that as a breach on the part of the buyer.
1) You said that your agent had a pre-approval letter on one vs both buyers. If one were not acceptable, you should have asked for a new pre-approval letter prior to accepting the offer with that single party pre-approval letter. A single party pre-approval letter was fair warning that they were intending to use one vs two names on the loan.
2) Lender suggesting one vs two names on the loan is VERY common, even if the party being omitted has an excellent credit score. It usually has to do with the ratios vs the credit score. The other party might have more debts than “qualifying” income, making the ratios more in line without them on the loan. This happens a lot when people move to an area for the job of one of the two. The other is called “the trailing spouse” and if that person does not have a salaried job in the new location, they would count that persons debts (like car payment) but not their income. So leaving them off the loan is often better than including them.
Most often a sincere buyer will agree to switching lenders to one recommended by the agent for the seller. If a different lender would grant the loan, then you have proof they could have gotten one if they really wanted to…but that doesn’t appear to be the case here.
More likely the buyer believed the lender, and started feeling this was going to be more difficult during the process, causing them to delay on the deposits. I think the buyer was injured as much as you were and I think the buyer is absolutely justified in not wanting to lose 20% of the purchase price over the lender’s negligence in preparing the pre-approval.
I doubt the market went down 20% during this escrow and 20% Earnest Money can’t be the norm or the forfeit. $10,000 to $15,000 would be more the high side of a norm. $60,000 is just unheard of and too much of a penalty IMO. 3% of the purchase price…5% max…and I think the buyer should sue the lender for whatever the loss ends up being. I had one back in the early 90s in Bucks County PA where the lender tried to deny the loan at the 11th hour based on something they knew on day 1. We threatened to sue, and they approved the loan and paid for the buyer’s cost of the delay as they were without a home for several days in between. They paid hotel costs and storage fees and approved the loan…all.
There’s a bad guy in all this somewhere…but I don’t think it’s the buyer(s) from what you have said in all of the comments. Even if they simply changed their mind…20% of the purchase price is too much for a “liquidated damages” amount, and their agent should be sent to “how to be a buyer’s agent” school.
Here’s the latest in this horrible selling experience…
The buyer got a “conditional” mortgage a couple of weeks ago. As of now, he still has not met all the conditions. The remaining conditions are easy things like writing a letter to the lender explaining why he wants to purchase a property in the same town and delivering his latest 401k statements.
The buyer is asking us to sign an addendum that removes one of the buyers names, changes the loan type, changes the loan amount and moves the closing date back another month. We are NOT comfortable signing the addendum until the conditions on his loan are met nd we KNOW that he is approved. We feel like by signing it, we are agreeing to “forgive” all the other times he’s defaulted on the contract…allowing him to back out easily and take his earnest money with him should he not get this mortgage. Their lender has told us that once the conditions are met by the buyer, we can sign and immediately move to closing. In other words, the lender is ready to give him a free and clear mortgage approval, but by choosing not to meet the conditions laid out by the lender in a timely manner he still doesn’t have one…and he’s claming that’s because of us even though the lender says otherwise.
Yesterday we received a letter from an attorney representing the buyer claiming that us not signing the addendum is preventing the buyer from getting his mortgage. That claim is false according to the lender. There are still conditions that have yet to be met by the buyer.
It seems to us that the buyer is trying to back out and protect his earnest money. This whole situation stinks. Any additional thoughts on what’s really happening here? We just want to close.
Thanks,
Paul
Paul,
First I would like to say that I am sorry you have gone through this and will continue to be going through this.
I would like to introduce a term we call “proceeding in good faith”. The minute either party starts talking about who is going to get the Earnest Money, they change the pace of events moving forward.
If there is a contract…and NO loan can be applied for and processed without a contract to purchase, then people are moving toward an eventual closing. Once the contract is void unless extended, there is no “proceeding in good faith” in accordance with the contract…because there is no contract.
That being said, we sometimes have to move toward a closing without a signed extension from the seller (RARE) and two of the writers here wrote their stories of one closing (mine) and one that didn’t (Craig’s). I moved forward without a signed extension…Craig did not or could not. The seller refusing to sign an extension is no small matter and generally not necessary or acceptable.
http://raincityguide.com/2010/06/12/buying-a-bank-owned-home-balls-in-your-court/
http://raincityguide.com/2010/06/10/bank-owned-home-make-offer-at-your-peril/
You are asking the buyer to proceed without an extension…but why? If all you want to do is close, as you say, what do you gain by not granting the extension? Did you put the property back on market? If not…why not sign the extension?
Remember, the lender did not ask for that letter on day one. Maybe what they want that letter to say is not the truth. I would have to agree with the buyer, and have done so through most of our conversation, because once you ask “can I keep the Earnest Money” you introduce a dual purpose. Until the lender closes the file…everyone should be moving toward closing and not getting the Earnest Money. There is plenty of time to talk about who will get the Earnest Money when the lender is done with the file…which you have clearly said they are not.
I have to again say that is the fault of the agent for the buyer. The amount of Earnest Money should be just enough for the buyer to not want to default, but not so much that the seller may want to keep his house and the Earnest Money. The Earnest Money is so large in your case that it becomes almost an equally desirable end result to sell the house OR keep the Earnest Money.
You clearly have a situation where the buyer is borderline qualified. The “lender” you spoke with is not all of the lender people needed for this loan to be approved. Why take the chance that the underwriter (the person who approves the loan and is not likely the person who you are speaking with) would close the file because it is not a “live” contract??? Why take that risk? Why put the buyer at that risk point?
Now ask yourself this. If the Earnest money was $500…would you be acting the same as you are? I think not. I think you would be “proceeding in good faith” and signing anything that might be needed for this transaction to proceed toward closing. If the Earnest Money were $500…you wouldn’t want it. You would be signing that extension and NOT looking to preserve your right to keep the Earnest Money, instead of doing what needs to be done for this to keep moving forward.
I’d be inclined to extend the date only for now, and by 10 business days vs a month. It shouldn’t take a whole month if they have conditional approval. They may need to close at the end of a month because of interest pre-paids being smaller at the end of a month. But if it were me, I’d want it closed in a week to 10 days even if I had to give up something for that to happen. It’s gone on long enough. Another whole month seems excessive and too long to be carrying on with all this agidda.
Date only, and if they need the other terms changed in order to fund the loan…then I would agree to the other terms after the loan was fully approved and ready to fund.
As to preserving your rights under the contract…a date only change shouldn’t matter, but you might want to consult an attorney on that.
I totally understand where a seller is coming from. Although, when a seller and their agent become deceptive, then any and all monies should be returned. I am engaged with a rude, unethical, unprofessional agent who is in need of money, and has done everything in her power to expedite the underwriters process.
In the mean time, some of the appliances in the home which I WAS going to purchase have suddenly stopped working, disappeared then reappeared with something different in it’s place. At this point I do not have any reservations destroying a person(s) or the real estate company who is affiliated with someone of this caliber.
The Deceptive trade act will help, who knows they may pay for a new home without knowing it.
Respectfully…. No scared!!
I was to purchase a home which was listed as having been built in 1963. I pai a deposit of $5000. When I applied to insure the property, I was told that the property was built in 1937. The listing agent lives across the street and that according to Philadelphia records his was built in 1937. So was the neigboring house was built in 1937. My agent searched and found that the property was built in 1937 or 1953. The seller is reluctant in returning my deposit. I cannot in good faith purchase a property that was erroneously listed.
I didn’t see this back when it was written but happened on it when replying to a recent comment. I happen to be from Philadelphia and it is not usually a guessing game in any area to determine when a home was originally built. THAT SAID there is a HUGE issue connected to substantial remodel. Sometimes a home is basically new…except in order to be grandfathered as to the old 1937 requirements, it becomes what we call “a 90% remodel” in order to keep the older and more lenient…setbacks usually…of the original build.
This has become more of an issue here in the Seattle Area in recent times. King County as example will show two years. Year Built: 1957 Effective Year Built: 2009. Over the years it has been customary in many cases to show the Effective Year Built vs the actual year built if the portion of the original home is minor in comparison to the portion that is-was new in 2009. HOWEVER in the last couple of years here it has become a violation to show anything other than the ORIGINAL year built no matter how much it was changed unless it is truly a new house in the later time period. The Effective Year Built can be noted in the marketing remarks and on the Seller Disclosure Statement with an explanation. But the Effective Year Built cannot show in the “year built” data field.
I believe this is a relatively new violation of the MLS rules over the last couple of years, so worth mentioning for the benefit of local sellers and their agents.
What if the lender withdrew funds on the closing day due a writ against of the buyer. Would it be fair for seller to keep all the earnest deposit or at least return some of the money?
That’s an excellent question, David. Not 100% sure what you mean by “a writ” but it is not uncommon for this to happen because of a judgment entered against the buyer, and not uncommon for that to happen “late in the day” as to closing.
Usually a full review of liens against the property itself is conducted before the home is listed for sale. So there are rarely surprise “judgments” against the house or the seller that appear, though a lien can be recorded against the house during escrow and near closing. So that can happen.
What I think you are referring to is a lien against the buyer that was recorded against the person and anything they may own past present and future, that can negate the funding of the loan at the last minute. I believe this is due to the fact that the new buyer’s mortgagee intends to be the primary and in first position lien holder. A search in the buyer’s vs seller’s name is done…often…within a few days of closing. I have seen that happen a few times in the last 24+ years and even as recently as a few months ago. I have been lucky in that the potential crisis was always averted because the problem was a case of mistaken identity and quickly resolved. Someone with a similar name with a judgment as opposed to the actual buyer of the home. It’s a little scary at first but was resolved quickly in the few instances I have seen it happen.
To answer your question, there is no provision in most contracts for “some of” the money and most contracts…at least half I would think, do not have the finance contingency running all the way to the day of closing. So it depends on the contract provisions whether the buyer is covered under the finance contingency on the day the financing fails. But usually the buyer either gets it all back due to a legal out or the seller gets to keep all of it if the buyer’s legal outs have expired by the time the financing fails on this issue. Whether or not the parties agree to less than all of the money is a negotiation and sometimes depends on the amount of the Earnest Money whether or not people are feeling a negotiation is in order. But usually that is voluntary and not a provision in the contract to “share” the Earnest Money. In fact in some cases the contract calls for the Earnest Money to be shared between the Seller and the Agents vs the Buyer and the Seller. The buyer should have known about this blemish or soon to become blemish on their record. Often they are holding their breath hoping no one will find out and it is not a surprise or it is so old they forgot about it or as i said, it is a complete error.
Worth noting, here in our area the only “not all of it” provision is that a seller cannot keep more than 5% of the purchase price. I recently wrote an offer with a 30% of purchase price Earnest Money, as example. The seller could not keep all of that by Statute in WA, which is repeated as part of the contract terms. So the exception to my explanation above as to “sharing” the Earnest Money is if the Earnest Money amount is in excess of a stated amount allowed by local law.
I am changing lenders and the seller is telling my no .the seller says if I don’t stay with my current lender he will not wait for a new appraisal and underwriting .and I will be losing my EMD.is this legal ? Don’t I have the right to change lenders
Not enough information there as to why you are changing lenders and also it sounds like you will need an extension to close on time if you do switch lenders. If you are local, read the finance contingency. It is true…but…if you get to the day of closing and you have the money to close on time from a different lender, the seller would be hard pressed to make a stink about the fact that the money is coming from a different lender. But from what you are stating as the seller’s concerns, it sounds like the different lender will also mean a late closing. So it really does depend on why you are feeling the need to switch lenders.
If you are a week from closing, as example, and want to switch lenders because you can get a better rate, and doing so will require a 30 day extension of the close date, well…no. Not likely the seller would agree to that.
The reason the seller needs to agree is if you were denied by the first lender, then the seller wants to get back on market vs waiting for you to be denied by a 2nd lender. So it all hinges on why you feel the need to switch and how late you are in the process.
Hello Ardell,
I lam buying a new home and selling my old in Pennsylvania. The sales agreement for the house I am selling is “where is – as is”. They buyer waived all inspections and left a 5k deposit. I also have a sales contingency being the sale of my current home as part of that agreement of sale.
I made deposits of earnest equaling 10k.
Ardell, with two weeks to go the buyer of my home is asking for an addendum that my house is in the same condition it was when he saw it. That’s hard to quantify at this point.
I offered for him to do an early walk thru, and I have not heard back from my realtor or anyone for 5 days. I am concerned that the buyer of my home is trying to work the price down,and will wait until settlement day…
The buyer was 10% short of the cash sale when showing has bank accts when we started.
I asked my realtor to show more money at least the cash amount plus closing costs. I asked at least 4 times and I was brushed off. Last week I reached about to the VP of the agency to please get that and try to get a feel for whats going on. I have not getting any response now.
Ardell, If the sale of my house falls thru can I recoup my deposit and also keep the 5k from the buyer of my house ? I was recently shown the check from the buyer but it was not deposited in
an escrow account. That check was allegedly deposited 2 months ago,
I know I sound paranoid, but this is feeling all wrong. I Now have two weeks to try and push t his one way or the other
Your thoughts ?
Panicking in Pa
You don’t have much choice at this point except to hope for the best. It’s a little sketchy because you accepted the offer before you had full “proof of funds”. When you later received proof of funds at $10,000 short, you continued with the contract. In fact you might have had no choice as the contract likely didn’t give you a legal out if proof of funds was $10,000 short, which is why you should get that before you accept the offer.
If in the end the buyer is $10,000 short or $5,000 short, it will not be a surprise to anyone. But I don’t think that is likely, so hope for the best as I said.
It’s been many years since I sold real estate in PA, but yes, the walk-through is the normal way for a buyer to verify that the property is substantially in the same condition as when they made the offer. The only thing I see is you answered correctly that walk through vs addendum is the norm, but then wanted an “early” walk through to give you more peace of mind. It sounds like they agree, but will do the walk through “in due course”, which is often the morning of closing in PA and rarely earlier than 5 biz days prior to closing (usually for relocation properties).
You basically got everything you wanted. Since your comment got stuck in moderation we are very close to closing and hope it all works out. What you get to keep or what you lose if it doesn’t close is never addressed automatically on the day it doesn’t close. So let’s hope for your not needing an answer to that question. If you do, that all happens after the fact. If they don’t close, the particulars of how and why need to be known to answer that question. So you can’t “think ahead” on that one.
My money’s on it all works out from what you have said here. Hopefully you’ll come back and let us know.
If we open escrow on 1/13 and cancel 1/29 and was trying to cancel before that date, but agent kept on encisting to think about it ,so i decided to go straight to escrow and cancel there but I did not sign any contingency ,so escrow said I should get all my money back only on escrow for 16 days
Why did you cancel? Earnest Money is the amount you agree to forfeit if you decide to cancel with no legal right to do so for that particular reason in the contract. If you just changed your mind about buying the house, it doesn’t matter how long into escrow you did that. There is no provision in most contracts to get your money back if you simply change your mind about buying the house.
Hey Guys,
A land transaction of my friend’s fell through. He was the buyer. He put down $15,000 Earnest money. He had a financing contingency and the bank refused to give him the loan. Now the seller states that he defaulted and refuses to sign notice to void contract and refund EMD. Seller has not responded to notices from Buyer’s attorney. What to do?
A little bit of background: Buyer put a note in addendum that ‘buyer will purchase land as is’ along with a robust financing contingency that lasted 60 days or until close, whichever was earlier. The land was zoned Agricultural and the bank refused to finance the land as it was zoned. Any thoughts??
My first thought went to the beginning vs the end. Financing a land purchase has always been extremely difficult. A seller of land, a buyer of land, the agent for the seller of the land, the agent for the buyer of the land, pretty much everyone should be aware that most lenders do not readily finance land. This is true even when not zoned “agricultural”. This is true when someone is buying a house but “value is in the land” more so than the structure. Not a big secret.
I just went through some recent land sales to check my perception and 64% were bought with cash, 82% were cash or private party lender. 18% were financed through a “specialty” lender.
It is so common for land purchases, especially land zoned agricultural, to be ineligible for conventional financing that for many decades that type of installment seller financing has been called “a land contract” even when the purchase using that type of financing isn’t land.
Land Contract Financing
https://en.wikipedia.org/wiki/Land_contract “…is a contract between a seller and buyer of real property in which the seller provides financing to buyer to purchase the property for an agreed-upon purchase price and the buyer repays the loan (to the seller) in installments.”
You say “the bank refused to finance” as if the buyer did not explore every possible financing resource. Perhaps they applied with the wrong type of lender, and only that lender, and one possibly known to not finance this type of land. Perhaps the seller is refusing to refund the Earnest Money because he does not feel the buyer’s efforts to finance were diligent and sincere. Perhaps the seller is offering comparable alternative financing such as the “land contract” arrangement noted above and the buyer is not willing.
While things appear to be crystal clear on the basis you stated, rarely is that the case in these situations. Rarely does the contract state if “X,Y,Z” lender will not finance, buyer’s Earnest Money will be returned. Getting a letter of denial from a lender known to not finance that type of land may not be sufficient in this case. To some extent the seller should know which institution may finance his land before listing it for sale and possibly require that the buyer know that in advance and agree to apply with that one institution, or agree to seller financing in advance if there are no lending institutions who will finance that land.
This question comes up here from time to time with regard to co-ops, mobile homes, HOA’s with an ongoing lawsuit issue. Sometimes we have to say “cash only” or property can only be financed with “X,Y,Z” lender. I once had a client who could only qualify with 2 lenders via a deal worked out with their employer. If a buyer applies with “a lender”, and only one lender who is known to likely deny the loan, how valid is the effort?
I don’t think your scenario is in WA and what happens next varies depending on the State you are in. Normally we might say “consult an attorney in your area”, but you note that the buyer already has an attorney working on this.
We clearly don’t know more than that buyer’s attorney. My response is simply to suggest to you as their friend that there may be more to the seller’s unwillingness to release the Earnest Money than is evident by only knowing the details of the Finance Contingency.
And that is sound real estate broker advice!! Good stuff, Ardell.
This isn’t legal advice, I am not your attorney (or your friend’s), your friend should consult a lawyer, not a friend consulting a blog. Subject to that disclaimer…
What is the lawyer doing now? The ball is in his or her court. Time for a well-written demand threatening a lawsuit, followed by a lawsuit. The contract likely includes an attorney’s fees provision, so the loser in any lawsuit will pay the winners’ attorneys fees and costs of suit incurred. If you have a dead-bang winner in this situation, you “threaten” a lawsuit and then promptly follow up if necessary. And if you don’t have a dead-bang winner on your hands, you’ll learn the risks and benefits of any possible way forward. But all of this is work for the attorney.
If you’re in WA there is also a law that you can use, RCW 64.04.220. But still lawyer work, if you ask me.
Good luck to your friend.