Urgent, possible loophole to save my earnest money

Urgent, possible loophole to save my earnest money

Member since 2022 · 17 posts · 8 votes

I placed an offer on a bank owned foreclosure that was accepted 9 days ago and am currently under a fully executed contract. We discovered a leak in the roof that will significantly increase rehab cost, making my HM Loan monthly payment too high to proceed.

I found wording in the contract that may allow me to walk away from the deal while keeping my 25k earnest money, but my attorney isn’t confident.

The inspection contingency states the “purchaser may inspect OR secure an inspection report of the property 5 days from the seller acceptance date”. Then the purchaser has 10 days from the acceptance date or 3 days from receiving an inspection report (whichever happens sooner) to provide written notice of disapproved items, after which, seller may request a copy of inspection reports supporting the claim of disapproved items . Then seller can decide to repair, reduce purchase price, or terminate agreement.

My question is, if I have my lawyer submit a written notice tomorrow (on the 10 day deadline) claiming that I as the purchase inspected the property within the 5 day requirement from the acceptance date, can I then use an official inspection report that was provided on the 10th day as my supporting evidence, even though the “official” inspection took place after the 5 day deadline?

I’m otherwise at risk of losing 25k earnest deposit

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Real Estate Agent · Portland, OR · Member since 2020 · 278 posts · 136 votes
3y

I'd probably lean more on the side of the lawyer. The timeline seems pretty clear. The only other potential out I could think of is if your state/contract has a financing contingency or maybe a seller property discloser contingency. The financing contingency would probably be the better option and if the roof has an issue the lender might not lend on it. From my knowledge, Appraisers will not actually appraise the property if it is not livable or the major systems (including the roof) are not working. I'm not an appraiser though so you'd have to double-check with them. The SPD contingency is likely to void since banks are usually able to waive those since they don't know. 

Given how banks operate, you may be able to slide this past them but you still have a chance of you losing the earnest money. 

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  • Real Estate Agent · Portland, OR · Member since 2020 · 278 posts · 136 votes
    3y

    I'd probably lean more on the side of the lawyer. The timeline seems pretty clear. The only other potential out I could think of is if your state/contract has a financing contingency or maybe a seller property discloser contingency. The financing contingency would probably be the better option and if the roof has an issue the lender might not lend on it. From my knowledge, Appraisers will not actually appraise the property if it is not livable or the major systems (including the roof) are not working. I'm not an appraiser though so you'd have to double-check with them. The SPD contingency is likely to void since banks are usually able to waive those since they don't know. 

    Given how banks operate, you may be able to slide this past them but you still have a chance of you losing the earnest money. 

  • Real Estate Agent · Kansas City · Member since 2018 · 4k+ posts · 3k+ votes
    3y

    I think this is a long shot. You went past the 5 day deadline, banks can be picky and strict. As William said using the financing contingency will be better for cancelling. Are you able to get a loan denial letter or something to cancel due to financing? As the attorney for other options. If you submit what you proposed and they fight back/reject it'll be a upward battle on cancelling and getting the EMD back.

  • Member since 2022 · 17 posts · 8 votes
    3y

    Thank you for your responses!

    After rereading the contract, the seller acceptance date was 6 days ago, not 9, and the 2nd day after their acceptance I did in fact walk through the property myself and take pictures of ceiling damage, roof damage, and other issues. Does that give my case anymore merit?


  • Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes
    3y
    Quote from @Robert Alexis:

    I placed an offer on a bank owned foreclosure that was accepted 9 days ago and am currently under a fully executed contract. We discovered a leak in the roof that will significantly increase rehab cost, making my HM Loan monthly payment too high to proceed.

    I found wording in the contract that may allow me to walk away from the deal while keeping my 25k earnest money, but my attorney isn’t confident.

    The inspection contingency states the “purchaser may inspect OR secure an inspection report of the property 5 days from the seller acceptance date”. Then the purchaser has 10 days from the acceptance date or 3 days from receiving an inspection report (whichever happens sooner) to provide written notice of disapproved items, after which, seller may request a copy of inspection reports supporting the claim of disapproved items . Then seller can decide to repair, reduce purchase price, or terminate agreement.

    My question is, if I have my lawyer submit a written notice tomorrow (on the 10 day deadline) claiming that I as the purchase inspected the property within the 5 day requirement from the acceptance date, can I then use an official inspection report that was provided on the 10th day as my supporting evidence, even though the “official” inspection took place after the 5 day deadline?

    I’m otherwise at risk of losing 25k earnest deposit


     Ok so all do respect, If you are panicking over a leak ( its nothing under 500) you 100% should not be doing this deal. Its a leak no big deal. Lets says worst case it needs a new piece of plywood, 40 bux, and one sq of tile ( its 10 x 10 so should be more then enough ) thats 120 bux, If this makes your deal no longer a deal, well then it wasn't one to begin with. Again panicking over a leak 

    Sorry to be so direct, I tell people what they need to hear vs want, 

  • Suzanne PlayerPro Member
    Attorney · New York City / Long Island, NY · Member since 2020 · 597 posts · 248 votes
    3y

    @Robert Alexis

    Just seeing this thread now.  Would you give us an update when you have a chance?   A lot of people will be interested in hearing how this goes.  

  • Member since 2022 · 17 posts · 8 votes
    3y

    Thanks again everyone for your words of advice. 

    @Suzanne Player, after much back and forth and some recitation of the contract’s language, I was successfully able to terminate the contract using the inspection contingency. My own walkthrough legally constituted as an inspection due to how the contract was worded and I received my full earnest money deposit back accordingly. 

  • Suzanne PlayerPro Member
    Attorney · New York City / Long Island, NY · Member since 2020 · 597 posts · 248 votes
    3y

    Glad to hear everything worked out

    I see you're in the Long Island area, if you'd like to join a meeting of our Real Estate Investor group we meet monthly, I list the events on Bigger Pockets in the Classifieds/Events & Happenings section

    Our next:  

    https://www.biggerpockets.com/...

    It's very informal, open discussion (but you're under no obligation to share anything if don't want to), all aspects of real estate 

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