@Greg Dickerson provides the best advice above. I am not an attorney, so I am sure the following story will not utilize the proper legal language for the actions/events that occurred.
We were on the buy-side of a deal and decided to exercise our contractual right to pull out (our notice was delivered during the DD period). We followed all contractual procedures to a "T". The Seller refused to release our EMD. Following all the "rules", we sent letters, notices, etc. requesting immediate release of our EMD. These actions produced no results. The Seller still refused to release EMD. We had to file suit. This was in Nov. 2018.
Seller used all kinds of tactics to avoid being served the lawsuit. He changed lawyers, stayed away from known addresses, etc. Ultimately, we were finally able to demonstrate to a judge that Seller was actively avoiding service. The judge allowed us to serve the latest attorney on file and to also "serve" via public publication (newspaper notice). Once the attorney was served, the EMD was returned. This was 96 days later in Mar. 2019.
At this point, we were in pretty deep on attorney’s fees (+/- $15K) and decided to continue with the lawsuit to recapture said fees. It is April 15, 2020, and the lawsuit still has not been decided. We were supposed to have received a judgement on April 2, 2020, but of course the courts are closed because of CV-19. Judgement was postponed until June 2020.
Fortunately, the Seller's tactics and his attorneys' behavior (all three of them) pissed off our attorney and he decided to move forward on contingency after we racked up the +/- $15K. We are fairly confident we will prevail in the lawsuit. The Seller's counter-claim was that 96 days was a reasonable time frame to have returned the EMD and that the contract did not specify when the EMD had to be returned. They ignored the "time is of the essence" clause.
There are couple lessons here.
First, I would advise that all purchase sale agreements have the word “immediate” preceding any language that discusses the return of the EMD. The "time is of the essence" is fairly straightforward and seemed sufficient, but if the word immediate precedes the direction to return the EMD, you remove all questions about what is a "reasonable" time frame for its return.
Second, Buyer DD should not only include all that is pertinent about the property, but should also cover the Seller themselves. There was a very good reason we backed out of this deal.
The property in question was a 9-unit industrial warehouse. We requested all the standard documentation and then some. While we received the leases, we were only provided limited financials, and no records of tenant payment histories.
OK, so maybe they just didn’t keep good records? This was a great building in a fantastic location, the lease terms were LL favorable, and the tenant base seemed strong. We still wanted to proceed. But before we did, I requested interviews with all tenants as a last-ditch effort to fill in some of the gaps. The Seller denied our request and warned us to stay away from the tenants until we owned the property.
While there had been a small red flag in the back of my mind because of the weak documentation, I became outright suspicious at Seller’s reaction to our request for tenant interviews. So I began researching the Seller. It was a Family Trust, so it took some digging but I eventually found some background on the Trustee.
Turns out, this Trustee had recently been released from an 8-year stint in prison for insurance fraud. He had owned-operated a disaster restoration company. This company would receive people’s insurance claim funds and then not complete the work. It was a massive ring of fraud. Thankfully, this person was caught, tried, and sentenced.
While finding out what we did about the Seller was enough for us to pull out, guess what type of business comprised the building’s largest tenant? That’s right, a disaster restoration company. We pulled out that day. We were not dealing with a good person. And boy was I glad I researched the Seller on top of everything else. I can only imagine the mess had we moved forward.
Finally, I will note that we have followed the sale status of building with an elevated level of interest. A lien will likely be our only way of collecting. To-date, the building is still for sale (I imagine other would-be Buyers are finding out what we did). The brokerage company has changed several times during our monitoring of the asset. In each instance, I have forwarded all the publicly published articles I uncovered on the Trustee. I want them to be aware of the type of person they are representing. Not one broker has reached back out to me with questions or comments.
