Angry sellers not returning earnest money

[Jane S.]

This is not my first time finding out that a property I had UC had too many deferred conditions. But it's the first time I'm not getting my earnest money back.

The sellers accused me of acting in bad faith. However, their MLS listing stated the house was a 4-bedroom, and the 4th bedroom was in a partially finished basement, had no door, no light switch, no closet, and egress was not compliant with code. Also the so called bedroom was adjacent to the location of the room with the gas furnace & water heater and AC, and I was told that if the furnace was drawing air from the adjacent "bedroom" it could not be used as a bedroom or "office". I think that's why the entry door was not hung. I'm not sure I could get a building permit to convert this room into a bedroom.

There was only one light switch in the basement located at the bottom of the stairs and it operated both basement ceiling fixtures. (The mechanical room had a ceiling light with a pull chain.) So I should have walked away but now I'm looking at a dead loss of $5K. The property is in a very good well-maintained older location and had a lot of curb appeal. Sellers had done a fair lipstick job on the main and part of the upper floors.

The sellers installed a $50,000 solar array of 12.8 kw, which I also found out was way too much capacity in that location for the sole purpose of lowering the electric bill. The MLS listing also stated that "there would never be an electric bill" but our utility doesn't refund any money, they deduct if from the cost of the other utilities. There is always at least a $17/month basic service fee. So more BS in the MLS listing.

The sellers borrowed the money to pay for the solar array. I was surprised that they were able to borrow the total price. If it had been a leased system I would not have made an offer.

It took the listing agent about 10 days to respond to my requests for the sellers utility bills so i would be able to see how the solar  system performed. She never asked the sellers to provide them, according to my broker.  And there was no other way to learn how the system functioned. This foot dragging made it really difficult to do any realistic cash flow projections.

As an interesting side piece of data, the (currently getting divorced) sellers borrowed the $50K for the solar system, so they owned it, and it went live this February. They separated and moved out in May this year. Prior to that they had installed a beautiful, very expensive xeriscape landscape front and back, which is a joy to look at, and which also must have sapped their finances in addition to a new furnace, new roof, new central AC, and cosmetics in the interior of the house (LVT & tile etc).

I plan to call a few attorneys to try to determine what my liability would be because the sellers have stated their plan to take me to court if I challenge them.

What's your quick opinion, should I avoid the stress of litigation? Do I have a case?  According to my broker, they can't try to get more money out of me than the earnest money. But if I got legal representation and lost I have all kinds of very expensive liability.

I definitely think they snookered me by withholding the truth and the facts of the solar deal they made. 

Thanks much for reading this far. Maybe I should stay out of the market for a while.

[Steve K.]

If you cancelled properly during your inspection period, the seller will have no grounds to keep any of your EM. You don't even need to provide a reason in CO, you can simply say "buyer is terminating based on inspection". So whatever your reason is, they can't keep any of the EM just because they disagree with it. 

However contracts don't enforce themselves and sometimes people do unreasonable things. The title company can't release the EM to you until the seller signs the release. The next step would be to go to mediation and then if that doesn't work, getting lawyers involved and suing each other. Have your agent tell their agent that they have no grounds to keep any of the EM (assuming you terminated properly within your inspection window), that they will likely lose if it goes to litigation, and that the loser pays both lawyers. Plus they won't be able to sell the property until your contract is mutually terminated/ EM released. Usually making these points is enough to get the seller to sign the EM release. Good luck! 

We've had a lot of deals falling out recently thanks to the shifting market (buyers and sellers both think the market is in their favor right now) and what I've done a few times is to schedule the inspection date before delivering the EM, when possible. For example I recently made an offer on a Friday morning, with acceptance deadline that night. Title companies are closed over the weekend and it's customary to have 2-3 business days after contract acceptance to deliver the EM. So we set the EM deadline for Tuesday and inspected over the weekend. If we decided not to move forward after inspection, we could simply terminate and not deliver the EM. This way there is no risk of an EM dispute, title work hasn't been started, appraisal/survey hasn't been ordered, etc. and it's a much cleaner breakup. The timeframe doesn't always work out like this, but if you'd like to avoid running into this issue again then you might consider inspecting before delivering your EM if possible. Just food for thought.