Getting back earnest money

[Peter Mckernan]

Hello all,

I want to throw this out to the BP community and see if we have a foot to stand on. So, two business partners and I were just in escrow on a listed "duplex." We are 25 days in on a 60 day escrow. The escrow is 60 days due to getting a tenant out of the mother-in-law's quarters. We have removed contingencies as well.

This is where I will shorten the story to get to the point quickly. They listed the property as a duplex. The property had three structures on the lot. One was the front unit, a 2/1; the second unit was a separate mother-in-law's quarters, a 1/1; and the third structure was separate and it was a garage. We got an inspection and appraisal done. The appraiser stated that the unit in back was never permitted for a second unit (so, it was a SFR).

We have been working with the city and sending our GC down to the city planning department to see how we can make the second unit a 2/1 and a portion of the garage a 2/1. We were planning on permitting it all legally to be able to get the cash flow and later down the road sell it as a true triplex. The GC was told just two days ago by the senior city planner that due to how the lot was developed it would never be legally permitted for more than a SFR. This is because the property was developed prior to 1955 and that is when they put some more requirements into the city planning code that this lot does not fit within.

So, with all that information, do we as buyers have backing to get any of the deposit back since it was listed as a duplex and we finally figured out that we will not be able to make it a duplex as listed, or even make it a triplex? I know we have lifted contingencies, and that is where we will have the biggest problems getting any money back.

Thanks,

Peter 

[Christopher Telles]

Given what you've said and the mere fact you've already waived buyers contingencies you just might be at the mercy of the seller to allow you to cancel and then allow escrow to return your deposit.

If you and your partners truly don't want to own this property then you should ask the seller to cancel stipulating your reasons. Of course they may not care and will not want you to close, but then again they may be reasonable people and allow you to cancel and get your deposit back. You won't know until you ask. Ask nicely at first. Then if that doesn't work and you still want to cancel use your attorney to write a cancellation threatening suit if they don't agree.

When considering canceling and losing your security deposit you might also look at all of your options. If you close and don't want to own long term what would be the most cost effective way to recover as much of the "lost" EMD (or more succinctly which way would put more money back into your collective pockets) fighting the seller in court which may be a losing proposition from the start or closing and then either doing what you were going to do to it and then selling, or simply closing and turning right around and putting it back on the market for sale.

When it comes to money there is no pride. You can usually have one or the other, but not both.

Use this situation as a lesson in buyer due diligence. If any question remains open about a property before a contingency expiration date then that question needs to get answered, or if there is a problem a solution to the problem needs to be found before the contingency expires. If the question isn't answered or the solution is not found before the contingency expiration then it is a must have to get the sellers written agreement to extend the contingency period. 

A buyer should try to just get an open extension of the contingency. However, astute sellers will sometimes become hesitant to grant an extension. If you run into this situation then ask for an extension of the contingency as it pertains specifically to the question that needs to be answered (zoning: can the building be of a mixed use) or the solution yet to be found (pool drains without pump running).