Am I going to lose my Earnest Money?

Question

I was about to close and the bank (Better. com) denied me for not having a long enough work history.  We went over this many, many times and I wrote a letter explaining my work history working as a yoga instructor and volunteering my time to get my hours to get certified.  I now work for a company for over 6 months with steady income and they denied me 3 days before closing.  Now I'm trying to get my Earnest Money back of 10k.  Yesterday they went contingent with another person to buy the same house.  They are offering to take 7 and give us 3.  We offered 1500 and we get 8500 back.  Now they are offering 5 each.  This was not my fault and shouldn't I get all of it back?  Does my lawyer have some work to do to get it all back?  Do I need to go after Better?  Do I get my Earnest Money back?

Account Closed · Answer

In California at least Earnest money can be kept only if the seller can prove actual damages. If they put the house back on the market and it sells for the same or more, they cant really claim the Earnest money except maybe the carrying cost for the extra time. The earnest money is held in escrow and sellers cant just take it unilaterally. And like others have said, you should have had a finance contingency anyway.

Wayne Brooks · Answer

Joe, I have to disagree on this one. If a buyer still has an enforceable contract to buy, they can encumber the title by filing an affidavit/memorandum of the purchase agreement. But….once the buyer can not perform, and the closing date passes, the purchase contract is terminated. It would be fraudulent to cloud the title over an EM dispute. I’ve been there as a seller, it’s an empty threat, at least in FL.

Joe Splitrock · Answer

Tell them if they don't refund all your money that you will cloud the title so they can't close with another buyer. They have a contract with you, so if they want you to release that contract, they need to return ALL your money. Odds are good that your purchase agreement has a financing contingency, so they are not entitled to keep anything if your lender backs out. They could even have the property under contract with a new buyer at a higher price. Don't negotiate with them. Tell them after speaking with your attorney, you were advised that they owe you 100% refund based on the circumstances.

Bruce Woodruff · Answer

a) Shoulda taken the $7k. Now you better take the $5k. or you'll be taking $3k

b) No you shouldn't get it all back. You wasted their time (in their opinion) by not being able to perform on your end.

c) This is a business...

Wayne Brooks · Answer

@Scott Pillsbury There is Very Specific language in your contract detailing your financing contingency, timelines, what happens at certain dates, seller and buyer choices and requirements, etc.  We can not possibly know the language in your contract.  We would never accept a contract where the buyer’s preapproval was only from some online company (rocket mtg being the worst, and a non starter for us).

Andrew Postell · Answer

@Scott Pillsbury your purchase contract should have a "Third Party Financing Addendum" that states your time period to get approved.  If you received your "no" before that date expired you have the right to get your earnest money back.  If you got your "no" after that period ended, then the seller does not have to give you anything back.  Each state might have some specifics here that I cannot comment on but that's the general concept of your contract.  Very sorry that this happened.  Always work with a local lender that comes recommended to you.  It doesn't guaranteed that things won't happen but it will significantly help with things like this.

Jesse Glatz · Answer

Though this is true in TX to a point, there is a third party financing clause that states you have a certain timeframe to let the seller know you either can, or cannot obtain financing approval and get your EM back. However, there is a caveat to this that most agents fail to either learn, be taught, or don't read the contract, or simply the case that it is not practiced in certain areas.

The TPF addendum states that there are 2 areas of Financing Approval, Buyer Approval and Property Approval. Buyer approval is typically the one you let them know the number of days you can obtain financing, BUT, it does state that Buyer is considered to have obtained approval when "...(ii) lender determines that Buyer has satisfied all of lender's requirements related to Buyer's assets, income and credit history".

This can be a bone of contention when it comes down to it as unfortunately, in your circumstance, I would argue as the listing agent for my seller to keep all of the EM because you did not perform to the TPF addendum as you were not able to secure financing because of failure to successfully obtain Buyer Approval. Lenders will often take the position that if they cannot approve the work history piece then that falls within the "income" scope of buyer approval.

To Andrew's point, local lenders and agents are BEST, as they know the market, how RE is practiced in real life in that area, and have a personal relationship with agents and appraisers to benefit the transaction on either side. Like me, it helps to know which agents and lenders look at, know, practice, or otherwise conduct business so I can successfully negotiate on my client's behalf. I absolutely hate to turn away business, but I typically don't take on clients that want to use Quicken, Rocket Mortgage, etc anymore. They do a very VERY high level credit overview to get you an approval letter then when it comes down to it, during the transaction, the underwriting is much more intense and they fail a lot of loans if the client is too close to the wire. I went though it about 3 times with different client's and in the end, winds up costing them big bucks. One time Quicken approved my client for $100,000 at a 4.2% but he had a great job, great income and I felt he would do better locally, I got him hooked up with a local lender that understood shift work, shut-downs etc and he got approved for $250,000 at a 2.8%, we are closing tomorrow on his home.

Never underestimate the power of local relationships, boots on the ground agents, and intimate local market knowledge!

Adam Martin · Answer

As others have said check your financing contingency as most contracts will have one.  It is ridiculous that you got that far into the mortgage and this is what is holding you back since they knew your job history from the start.  Declining you for it is fine but shouldn't have taken that long.  That said it is not the sellers fault the bank fell through as well and is unfair to them.  They very well may also be in the process of buying a home and their current house closing may affect their ability to close on theirs plus they have holding costs.  The whole purpose of earnest money is it is basically a bond you are paying the sellers to say you will deliver on sale.  You did not deliver so it is only fair that they keep it and giving back 3k was generous, I would not offer anything if it wasn't explicitly stated in the contract I had to.  I hope you can get some of it back but I suggest talking to your real estate agent and going over the contract to see what it states and if you are owed anything and it is worth the fight you can.  If not be thankful for the 3k if it is still on the table.

Cody Neumann · Answer

@Scott Pillsbury

If you had the financing contingency in your offer you should be able to get all of it if not most of it back. I would consult an attorney about it.

Michael Plante · Answer

Where did they offer to give back 7k?

Am I going to lose my Earnest Money?

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