Dispute: who should get the earnest money in this case?

Question

-We were under contract/mutual on Thursday February 8

th

-Buyer couldn’t get financing when the lender checked employment.

-Buyer wants earnest money back and realtor is pressuring me to sign for 51.

-Already cleared inspection contingency. Never made it to appraisal contingency due to the financing issue on buyers side.

-I spoke with the lender who admitted to me on the phone that the buyer never filled out the loan application, and that they gave income and employment information on February 5th, days before my listing was under contract or even on the MLS. It sounds like that was income information he gave for pre-approval. Lender said he never applied for a loan or provided anything else beyond that since we were under contract.

-The financing contingency was deemed waived on Thursday February 15th at 9 PM based on the fact that he never applied for a loan while we were under contract. He didn’t try to use the financing contingency to get out until February 20th.

-The way I read it he never applied for a loan under the terms of the contract while we were under contract. He only provided basic information for his pre-approval BEFORE my listing ever hit the MLS or was under contract.

-Earnest money of 10K should be mine, no? I’m consulting with an attorney but my appointment is not until tomorrow. Wanted to see what others have seen in these situations.

-Buyer was in the end (along with their agent) inexperienced and didn’t realize they didn’t qualify for a loan with gifted money on an investment property.

Christine Kankowski · Answer

The buyers get their money back, no question about it.They had a financing contingency, and they cannot get the financing.It was most likely in the contract that the buyer needs to apply for the loan and get an appraisal, within a certain number of days. etc It is the agents responsibility to ensure that these are getting done. If you knew there had been no appraisal yet, in our state, we send the buyers a NOTICE TO PERFORM, which gives them 2 days to get whatever done on the contract, or seller gets to cancel (and still has to give deposit back)Sucks if you are the seller, but the contract is written to allow the buyer a way out in this case.

Russell Brazil · Answer

Sounds like your agent was equally inexperienced for not vetting the buyers before accepting the contract.

Jay Hinrichs · Answer

well regardless of who is right the EM is not going anywhere unless you both agree to the terms of the release.. last thing I would do is waste money on an attorney over this.. If you and your agent think your right just don't sign the release.. the buyer for sure is not going to sign the release to you.. so its just a stalemate..the title company will hold the funds until such time as they interplead it to the court .. then you both hire attornies.. and fight it out.but in the meantime most folks would come up with a win win for this and split the money in some fashion ( assuming your correct that this buyer was out of contract and defaulted)

Jack B. · Answer

You didn't seem to read the whole post I wrote above. They didn't apply for financing within the allowed time frame. A financing contingency isn't a blanked get out of the deal free card...

Jack B. · Answer

Ding! We have a winner. That's what my attorney said. Luckily I have a text message showing that I would have to give notice to 2 tenants the night we were mutual as that was the last day within the state time window for MTM contracts. Attorney says he would never suggest litigating over 10K, but sending a letter to ask for 5K would be reasonable as I can show that I have damages. While it is tough to prove, it's not impossible. The buyer, realtor, mortgage broker and escrow "officer" are all Chinese and are colluding. My attorney said he has had 8 cases suddenly pop up with the exact same circumstances just this week.

Jack B. · Answer

How would a Realtor with a high school diploma and 90 hours of training vet a buyers money? That's what they rely on the lender to do...

Peter MacKercher · Answer

@Jack B. I'm not sure if earnest money can split in your area, but it can in St. Louis. I believe you are right in suggesting that you can keep the earnest money, but should is another question.Here's the rub. You keep the $10k, which we'll just agree that you are contractually able to do. They disagree and then start litigation to recover the earnest money. That leaves a pending contract on the property, so you're unable to sell while that's in process. That could be a 1 year process. That's WAY more expensive.There are real damages here, however:Holding costs during the period under contractTime costs for work put into contractA possible future price reduction on upcoming offers after the property is re-listedI believe it's far better to find an amicable deduction from the earnest money based on those above items. Holding costs is easy; just prorate your bills for that time.Time costs is the first fuzzy number. Do you value your time at $20/h, $50/h, $100/h? How much time did you spend trying to get this contract to close?And the last one, which really depends on your market: Once you re-list the property do you expect that the previous exited contract will affect the future price you'll get for the property? We do see that trend here in St. Louis; once a property comes on market there's a lot of initial interest. If it goes off market then comes back people wonder why it didn't close, so they assume there's some stink on it. What that difference would be, if any, is very hard to say.So, yes, the would-be-buyers made a mistake and it's their responsibility to make you whole. I think you'll be best off, however, if you make an honest effort to not just treat the situation like a payday and find something that works for both parties.

Gail Grenzig · Answer

There are 2 types of "costs" to doing business - the financial and the business relationship. I've been in situations where it cost me money, but it was worth the business relationship and reputation. There is also the underlying issue of cost of time related to resolving this issue. In my experience, I have found at times where I can be technically "right," but pursuing that outcome may not result in a win/win. I imagine there are things that you have already learned from this experience and sometimes that is invaluable. I would not ever put myself in your shoes or try to understand your situation - what I am sharing is that sometimes it is best to look for a solution that creates the best win/win and look at what you could lose (from all angles) after you identify all the routes you can take. It doesn't mean that this solution will feel right, but it may be what is best in the long run. Good luck.

Josh C. · Answer

I think I’d try to get 2 or 3 grand for the drama. 0% chance an inexperienced person with limited funds is walking away from 10k. They’ll put their whole lives into that money. Certainly not worth your time.

Chris Purcell · Answer

@Jack B.You had a financing contingency and they didn’t get financing.So you want to keep their 10k because your house was off the market for 3 weeks.IMO you should give it back and (you or your agent) should do better due diligence on your buyers before taking it off the market.