Deal feel through... attorney won't release my hand money!

Residential Real Estate Agent · Mc Keesport, PA · Member since 2012 · 449 posts · 154 votes

I entered into an owner financed deal. The seller wanted to use their attorney to handle the closing. I sent $600 hand money to their attorney as was required in the sales agreement. After the title search came back I was told that there was a line of credit on the home. That obviously killed the owner financing arrangement. The outstanding loan balance exceeded the purchase price - the deal is off.

The sellers disappeared. Now the attorney is refusing to refund my hand money stating that they incurred a cost of $473 for title abstract, lien letters, etc. I told him that it was not my fault that the deal didn't close and that he need to take that up with the sellers. He said he has tried to and they aren't returning calls. He kept saying that he was not going to eat that expense. What is my recourse at this time?

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Jerry W.Pro Member

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Investor · Thermopolis, WY · Member since 2012 · 4k+ posts · 4k+ votes

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@Jerry Kisasonak, I am going to disagree with everyone except @Kevin McGarrey. I am not licensed in your state so this is not legal advice. First you are not his client. If this guy was their attorney, he gets paid by them. In the absence of an agreement in writing he cannot expect a non client to pay his fees. There is no contract between him and you. Second he must state to you the legal reason to take your earnest money out of his trust account and keep it, just saying I am not going to eat this does NOT cut it. If he does not have the professionalism to get money up front too bad for him. Third politely tell him it is your money and you are not his client, and if he takes your money you will report the theft to the state bar. Ask him what normally happens to attorneys who steal money from trust accounts. He cannot use the leverage of holding money as security as an excuse to pay himself at your expense. I can answer that question, they get disbarred.

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Account Closed
Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
11y
Originally posted by @Jerry Kisasonak:

I entered into an owner financed deal. The seller wanted to use their attorney to handle the closing. I sent $600 hand money to their attorney as was required in the sales agreement. After the title search came back I was told that there was a line of credit on the home. That obviously killed the owner financing arrangement. The outstanding loan balance exceeded the purchase price - the deal is off.
The sellers disappeared. Now the attorney is refusing to refund my hand money stating that they incurred a cost of $473 for title abstract, lien letters, etc. I told him that it was not my fault that the deal didn't close and that he need to take that up with the sellers. He said he has tried to and they aren't returning calls. He kept saying that he was not going to eat that expense. What is my recourse at this time?
Jerry: Is "hand money" the same thing as "earnest money deposit". W
What's in the contract? Recourse upon default by either party should be covered in the purchase agreement. What does it say about title and legal fees? If you just sent $600 earnest money with no written agreement, you may never see that money again. My purchase agreement is only 3 pages and says who pays for what and what happens to the earnest money if either party doesn't or can't perform. Is there a purchase agreement and what does it say?
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Jerry Kisasonak
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Residential Real Estate Agent · Mc Keesport, PA · Member since 2012 · 449 posts · 154 votes
11y
Hand money is earnest money, yes. The agreement states that the seller will retain my earnest money if I don't close. It makes no mention of what happens if it doesn't close due to something on the seller's end.
The attorney's office asked me if I wanted to have them pull the title. I agreed. The title abstract was $150. The other monies is for lien letters and tax certs. These are the sellers expense and, in my opinion, should be items that that attorney needs to take up with the sellers. So in my mind I believe legally I should be refunded $450.
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Account Closed
Investor · San Francisco, CA · Member since 2014 · 577 posts · 203 votes
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@Jerry Kisasonak
I went to law school, but I am not an attorney, so this isn't to be taken as LEGAL ADVICE.
Based on what you've told us, that attorney has a right to keep your "hand money". The deal didn't close. If it doesn't mention it then it's going to have to be resolved between the parties or in court. Court costs are going to be significantly higher, so I'd take the $600 for learning the lesson of ensuring your contracts address this contingency going forward.
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Jeff Rabinowitz
Investor/Landlord · Farmington Hills, MI · Member since 2011 · 1k+ posts · 1k+ votes
11y
This is a small amount. You could take a shot at bringing a small claims suit. Those are usually inexpensive to file. The attorney might offer a settlement. Anything beyond small claims court is going to take more time and be more expensive. You could easily spend more than the $450 you think you deserve to lose the case.
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Jon Holdman
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
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I think this might be tuition for the school of hard knocks. Most purchase contracts do state what happens if the seller can't close. And that is that the EM gets returned to the buyer. I've never worked in a state where attorneys close deals, only with title companies. The title company knows its taking a risk that the deal won't close and they usually just eat their costs if the deal does fall apart. Seems like that might be the case. If the attorney explicitly asked if you wanted work done and you agreed that seems like you just agreed to pay for it whether you closed or not. Just like an appraisal, inspection or other up front costs. If you contract explicitly said you get your EM back, I would think you can enforce that. But since it doesn't and the attorney has your approval to do the work you may be stuck paying that bill.
Have you tried to contact the seller?
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Andy Luick
Real Estate Investor · atlanta, GA · Member since 2013 · 456 posts · 237 votes
11y
If the agreement states that if you don't close and doesn't address seller's issues or inability to close AND the recourse for that....you're about out of luck. I think you should propose a fair split of the earnest money with the attorney. I went to grad school in PA but had forgotten what "hand money" meant. When it comes to a problem, we are often stuck with the language in our contracts.
That being said, even attorneys are subject to negative reviews. I would give his office a call and try to work something out and just let him know that you will be posting some reviews of the deal at BP, yelp and with avvo.com which is a review site for attorneys. As long as you stick to the facts and don't libel the attorney, you're on pretty safe ground. Do it in a very nice way, nice voice and just let him know that you are a small guy and $450 means a lot to you. It might work for you. Otherwise, it's a learning lesson to make sure as many issues as possible are addressed on the front-end of deals. Happy Investing!
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Steve Babiak
Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
11y
Originally posted by @Jerry Kisasonak:
...
The attorney's office asked me if I wanted to have them pull the title. I agreed. The title abstract was $150. The other monies is for lien letters and tax certs. These are the sellers expense and, in my opinion, should be items that that attorney needs to take up with the sellers. So in my mind I believe legally I should be refunded $450.
Well, how can the attorney check that title is clear if tax and utility certs aren't obtained? Not sure what you mean by a "lien letter", but I'm guessing that those are for municipality utilities, so I refer to those as utility certs - and to tell if title is clear those must be obtained.
That dollar amount is just low enough that your attorney costs to fight it exceed what you would win, so tough to fight it. Did you require that the attorney give you a W9 since they took $600 from you, and tell them that you must send a 1099-MISC per IRS regulations? That might get them to re-think this ...
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Jerry Kisasonak
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Residential Real Estate Agent · Mc Keesport, PA · Member since 2012 · 449 posts · 154 votes
11y
Some good advice & comments here. Thanks! I really never thought that the contract would have to state what happened to the earnest money if the seller couldn't close. To me it only seems reasonable that the money would be returned to the buyer. I guess you learn something unreasonable every day.
The biggest part that gets me on this deal is that the attorney basically said that since he was not able to get the money from the sellers (where he knows it should come from) he is going to take my money because he has it. "They're not paying me so I'll just take it out of your money." That's BS.
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Jerry Kisasonak
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Residential Real Estate Agent · Mc Keesport, PA · Member since 2012 · 449 posts · 154 votes
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The reason I don't give the earnest money directly to the sellers is because I don't want them walking off with it. Now I am rethinking putting money into escrow. Doesn't appear to be safe there either.
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Kevin McGarrey
Essington, PA · Member since 2013 · 5 posts · 5 votes
11y
Jerry,
I am a Pennsylvania attorney. Take your issue to the State Disciplinary Board:
http://www.padisciplinaryboard.org
They will straighten out any problems with lawyers holding your money.
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Jerry W.Pro Member
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Investor · Thermopolis, WY · Member since 2012 · 4k+ posts · 4k+ votes
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@Jerry Kisasonak, I am going to disagree with everyone except @Kevin McGarrey. I am not licensed in your state so this is not legal advice. First you are not his client. If this guy was their attorney, he gets paid by them. In the absence of an agreement in writing he cannot expect a non client to pay his fees. There is no contract between him and you. Second he must state to you the legal reason to take your earnest money out of his trust account and keep it, just saying I am not going to eat this does NOT cut it. If he does not have the professionalism to get money up front too bad for him. Third politely tell him it is your money and you are not his client, and if he takes your money you will report the theft to the state bar. Ask him what normally happens to attorneys who steal money from trust accounts. He cannot use the leverage of holding money as security as an excuse to pay himself at your expense. I can answer that question, they get disbarred.
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Jerry Kisasonak
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Residential Real Estate Agent · Mc Keesport, PA · Member since 2012 · 449 posts · 154 votes
11y
Update: Here's a copy of the email that I sent to the attorney's secretary. Let me know your thoughts!
I spoke with Paul yesterday regarding the $600 earnest money deposit. He stated that he incurred a cost of $473 for the title abstract, no lien letters and tax certifications. After reviewing my emails, I recall that I was asked if I wanted to have your firm do the title work, to which I agreed. The cost for the title abstract was $150. Since I agreed to have your firm provide this service I am willing to cover the cost for it. I am requesting the return of the remaining balance of my earnest money deposit which is $450.
The other expenses that were incurred by your firm are not my expenses. It is standard in the State of Pennsylvania for the seller to pay for the no lien letters and tax certifications. These are standard closing costs FOR THE SELLER. If you prefer, you can reference this fact here: http://www.anytimeestimate.com/PA_SELLER/pa-home-seller.htm. Being that this is the case, Mr Toohey needs to look to the sellers to pay for this expense.
Additionally, I did not hire or engage Mr Toohey and I am not his client. Vernon and Barb Colgan contacted him and asked him to handle the disposition of their property. Therefore, Vernon and Barb are his clients and they are responsible to pay for these items. If I signed or accepted any sort of engagement agreement with Mr Toohey I am requesting that a copy be emailed to me. Otherwise, Mr Toohey is simply paying himself at my expense. Because his clients are not responding to phone calls or emails is no reason to pay their bill out of my funds. "They are not paying me so I will just take it out of your money" is totally inappropriate and very unprofessional. Mr Toohey, by law, needs to state the legal reason to take my earnest money out of his trust account and keep it. He has not done this, and his only response has been, "I am not going to eat this cost."
I am requesting the return of my earnest money deposit minus the $150 title abstract fee. If this matter cannot be resolved by way of reason, I will be filing a complaint with the State Disciplinary Board as well as posting attorney reviews on sites such as www.avvo.com. I have been very disappointed with the way Mr Toohey is conducting business.
I do not have Mr Toohey's email address, so if you could please promptly deliver this information to him that would be appreciated.
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Account Closed
Pittsburgh, PA · Member since 2014 · 79 posts · 70 votes
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@Jerry Kisasonak
If the letter doesn't do the trick, hire his older brother John to sue him.
http://www.johnstoohey.com
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Jerry Kisasonak
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Residential Real Estate Agent · Mc Keesport, PA · Member since 2012 · 449 posts · 154 votes
11y
@Account Closed
Nothing like a family feud! But unless they are estranged siblings, I think this would create a conflict of interest. I wouldn't want to constantly have to ask John, "Who's side are you on?"
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Account Closed
Investor · San Francisco, CA · Member since 2014 · 577 posts · 203 votes
11y
@Jerry Kisasonak
You are not an attorney and are wasting your time. He won't give you your money back because he doesn't have to according to the contract you yourself signed. If it's not in the contract, you can try threatening him, but it's unlikely you'll get a favorable response. And a lawsuit to try to get the return of $600 makes no sense. You'll spend over $5k in attorney fees to try to do that.
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Jerry Kisasonak
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Residential Real Estate Agent · Mc Keesport, PA · Member since 2012 · 449 posts · 154 votes
11y
@Account Closed I appreciate and respect your point of view but I totally disagree with it. The contract I signed (which you seem to know better than I) made no mention of what happens with my earnest money if the deal falls apart due to something on the seller's end. In that respect you could say that I have just as much right to it as the attorney does. But if you are to follow the customary practices in the state of Pennsylvania you will find that a buyer's earnest money is not used to cover what would ordinarily be the seller's expense. Am I an attorney? No. Do I need to be one to stand up for what I think is right? No.
To be quite honest, I get incredibly tired of hearing the comments of "Just suck it and walk away," "They have more money than you and they will spend whatever they need to on their attorneys," "It's not worth it after you count the cost to litigate it" etc etc. In my opinion it's exactly this type of thinking that makes people believe that they can do whatever they want because no one is going to take them to task over it. Once you get the masses thinking this way we are on our way to a socialist society. It is so un-American. If it's $100 or $100MM, justice is justice. What are they going to do, sue me over $600? I don't think so." Maybe that's exactly why someone needs to. If the question was, "Is it better to out-monster the monster or to be quietly devoured?" I suppose your answer would be the latter.
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Steve Olafson
Scottsdale, AZ · Member since 2014 · 659 posts · 536 votes
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You asked for advice and you are getting advice. You don't have to take anyone's advice but there is no need to get angry about it either.
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Account Closed
Investor · San Francisco, CA · Member since 2014 · 577 posts · 203 votes
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@Jerry Kisasonak
I would be angry too. But anger will not get your money back. The point of law is not justice, it's to efficiency resolve disputes. In this case, based on what you've said, the agreement did not specify of what would happen to the EMD if the transaction didn't close. Hopefully next time me you insist on additin that clause to your purchase contract.
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Joel OwensBusiness Member
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Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
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The BOTTOM LINE to all of this is to not let the seller or their attorney hold the earnest money.
When I did commercial land development and we assembled parcels the hard money put down was substantial over several tracks and in the millions total.
The developer I worked for told me he learned over decades to never let the seller or their attorney hold the earnest money. His experience was even if the contract STATED and showed the buyer was ENTITLED to the earnest money they often had to chase the sellers and or their attorney down for it and sometimes go to court. Sometimes the money was just lost.
So with my clients the way we usually do it is the buyers attorney holds the earnest money. If the seller will not go for that then we have a neutral third party title company that the seller or their attorney has no ownership interest hold the EM.
If the sellers demand to hold it themselves or the sellers attorney then we decline to go under contract with them. It's that serious of an issue. When problems arise you want a neutral third party with no beneficial interest. If there is interest at least let it be on your side and not theirs.
We all haven't seen the contract so it's not possible to give definitive answers on here. Even then the contract might be open to legal interpretation and the series of events that happened. If the contract stipulated that the money you put down was OPTION MONEY then it might not be classified as EM and doesn't have to be held in separate escrow accounts. It's all about the details.
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Christopher Mendoza
Real Estate Investor · Tampa, FL · Member since 2014 · 53 posts · 18 votes
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@Jerry Kisasonak
@Kevin McGarrey is right. Reporting to the State Disciplinary Board is probably the proper course of action. I am not licensed in your state, but I can't imagine what this attorney is doing as being legal or in compliance with the state's rules and regulations for attorney's. It is not your fault that his client didn't pay for the services rendered to that client. Imagine if the other client pays at some point. Now he has your money and his client's money.
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Wayne Brooks
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
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Geez, never seen a contract that didn't address the EM if either party defaulted/couldn't perform. Having said that, costs you were responsible for should be deducted, and Not costs the seller was responsible for. The bar association would be my next call.
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Jerry Kisasonak
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Residential Real Estate Agent · Mc Keesport, PA · Member since 2012 · 449 posts · 154 votes
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I usually put no more than $20-$100 up for EMD when I am dealing with private sellers like this deal was. But since the seller had his attorney draw up the paperwork it ended up being more. The original EMD the attorney had wrote into the agreement was $3,600. That was equal to the 20% downpayment. I am SO glad I requested that to be reduced. Lord only knows what would have happened to $3,600....
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Alan Rands
Investor · Saint George, UT · Member since 2014 · 2 posts · 0 votes
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Update??
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Bob B.
Investor · Jasper GA · Member since 2015 · 1k+ posts · 1k+ votes
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@Jerry Kisasonak
What happened?
Did you get your money back?
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Jerry Kisasonak
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Residential Real Estate Agent · Mc Keesport, PA · Member since 2012 · 449 posts · 154 votes
11y
@Bob B.
Sorry, I realize I should have posted a follow-up post to this thread.
In any case, the answer is yes and no. I didn't get the full $600 back - only $450.
I sent an email to the attorney explaining what closing costs are the responsibility of the seller and what costs are the responsibility of the buyer. In PA, the buyer usually pays for the title search. Deed prep, lien letters, tax certs etc are the responsibility of the seller. Being that is the case, I agreed to eat the cost of the title search which was $150.
What really turned this around was that the attorney pressured the seller into paying, and eventually they caved and cleared up the bill less the $150 that I agreed to pay. All is well that ends well! And now I know to have in our agreement what happens with the earnest money if the deal falls apart due to something on the sellers end!
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