Home Buying in 94545>Question Details

Davidgg, Home Buyer in Hayward, CA

Earnest money refund, any advice?

Asked by Davidgg, Hayward, CA Tue Apr 12, 2011

I had planned to put my house on rent and I made a deposit on a new construction two months ago. I did not use a buyer's agent. Now as the closing time is approaching I put a rental ad on craigslist but I'm not getting any interest at the rent I thought I'd get; maybe $500-600 less. Overall I'll be out-of-pocket an extra $1000/mo by moving to a more expensive area. To add to this difficulty, my father in law has had a heart attack and bypass and may need to move in with us. We won't be able to accommodate him at our new house because it's smaller. There's about 45 days till closing on the new house and I'm thinking of cancelling the contract, even though our loan for the new house was approved. I intend to plead with the builder -- potentially through arbitration -- to refund our deposit due to the financial hardship. Do I have a shot?


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David,

This is an excellent example of why you should have representation. I would review the contract and see what default terms are. If you have no legal reason to back out of the deal, then you may have to rely on the builder's good nature to get your money back.

There are attorney referral services in some areas where you can get an initial consult for free or reduced price, and some attorneys offer free initial consultations as well. Try that route if you don't get anywhere with the builder, but as pointed out below, attorney fees could eat up or exceed your deposit.
2 votes Thank Flag Link Tue Apr 12, 2011
Each contract is unique. It's imperative to review the terms of your specific contract... In this forum, all we can do is speculate as to what your contract says.

Generally speaking, financial hardship is irrelevant for the purposes of canceling a contract and receiving a full refund.

It is possible you may still be within a certain 'contingency' period; look for that terminology in the contract.

As mentioned previously, builders don't normally hold the buyers hostage to a contract; however, in this tight new housing market, they may see it differently.

David hit the nail on the head: this perfectly illustrates the need for buyer representation. I know I wouldn't want to go to court to represent myself in a contract that represents one of the largest purchases I'll ever make in my life. Depending on the amount of your deposit, attorney's fees could easily meet or exceed your EMD (earnest money deposit). So looking at it from a business perspective will be important as well.

There are other negotiation tactics that can be used to mitigate your loss as well (if it comes to that).

Good luck David!
1 vote Thank Flag Link Tue Apr 12, 2011
You have a shot, but you may have to sort out a couple of things first, which is why an attorney is a really good idea in this case.

One is that there's a difference between pleading with somebody, "Please, please, PLEASE let me out of the deal and let me have my earnest money back," and having a dispute on the facts of the contract, which is what going to arbitration attempts to resolve.

Pretty much, you need to be prepared to leave your earnest money behind if you do not close this transaction. I'm guessing your contract - the written representation of your agreement - didn't provide for your earnest money to be returned if you had to back out due to serious family medical issues.

All the best,
0 votes Thank Flag Link Tue Apr 12, 2011
Davidgg,

The second thing you do (after you talk to the sales rep who sold you the home) is to get a lawyer. IN my opinion, an agent will be of little help at this point since you are seeking to break a contract based on terms. At this point its a legal matter to discuss with the right professional.
Web Reference: http://bob2sell.com
0 votes Thank Flag Link Tue Apr 12, 2011
Davidgg:

You do have a shot! Good advice below. To summarize:

1) Having an independent Buyer's Agent is a good idea to “avoid the void” in representation brought on by dual agency.

2) Ask for, and read, the Builder’s purchase contract in detail before you move forward with placing a deposit.

3) "Super-sizing" your purchase to a larger home, given your new circumstances, may be a "win-win" solution for both parties.

I would suggest you construct a well thought out and detailed request in writing regarding a deposit refund. If the answer you receive is "No" you want documentation of the submittal should you seek legal counsel. The interpretation of a single word in the contract may provide the relief you seek.

From your post I gather you may be struggling with arriving on a rent that will attract renters. These sites may help you determine this:

http://www.rentometer.com/landlord
http://www.rentalhomesplus.com
http://hotpads.com
http://geo.craigslist.org/iso/us/ca
http://www.myapartmentmap.com/

This may also come in handy if you are going to be a Landlord:
http://docs.Steven-Anthony.com/Landlord-TenantGuideCA2010.pdf

Finally, if you are successful in extracting yourself from the contract with your deposit and are looking to purchase from a Builder once more I highly suggest you review the following document: http://docs.Steven-Anthony.com/BuilderRealtorAgent.pdf

Best, Steve
0 votes Thank Flag Link Tue Apr 12, 2011
Hi David, I am so sorry to hear about your father in law. I hope he gets better soon. I would deffinately talk to a real estate attorney. I would as stated below talk to the builder and let them know about your hardship and hopefully they will do the right thing. Next time even when buying a home (new or preowned) you should use a realtor. The builder or home owner pays them so you get the benifit of having a professional on your side at no cost to you. A realtor can help you negotiate a good price and upgrades among other things....Good Luck, Dawn
Web Reference: http://DawnRivera4Homes.com
0 votes Thank Flag Link Tue Apr 12, 2011
David -

First make your plea to the builder. If that does not work, consult with a real estate attorney. Generally speaking, a breach of contract and therefore loss of earnest money is determined by a lack of "good faith" to complete the contract. How far you are down the purchase path verses what options you have to take care of your family member may provide an opportunity to cancel without a "breach of contract" label. However, the only professional that can help you determine that possibility is an attorney. In my opinion the consultation fee with an attorney is well worth the chance to have your deposit returned.

CJ
Web Reference: http://www.TalkToCJ.com
0 votes Thank Flag Link Tue Apr 12, 2011
Hi David,

I have sold many new homes and the builders don't make it very easy to back out unless it is for one of the contingencies in their contract. You said that the loan was approved so I would asssume that the appraised value came in at purchase price, cause if it had not, you could have backed out for that reason. How about all the disclosures? Have you removed that contingency?

Maybe you should look at selling your current home. Hopefully you are not underwater on that house. If you want to keep that house, then consider renting it for the lower price, especially if you are going to lose a hefty deposit on the new house. You can also remodel the current home and the rent may get better so you can hang on to it.

As far as the new home being smaller since your father-in-law moving in, the builder may consider selling you a bigger plan if they have them rather than have you back out. But of course you may need to go for the loan qualification process again.

As you said, try to plead with them and see if they are willing to let it go and give your deposit back. There are some builders that will not make it a big deal and some that will just not give in. It also depends on how much the demand is. If they can still it to someone else quickly, they may be okay with letting you go.

Meena Gujral
Help-U-Sell Avhievers Realty
925-425-9491
0 votes Thank Flag Link Tue Apr 12, 2011
First talk with the builder and explain the hardship. However, depending on the contract, you may be liable . Did you have any upgrades done...and were they already paid for ? all things will hav e to be considered.
0 votes Thank Flag Link Tue Apr 12, 2011
Davidgg,

I've worked for builders and represented buyers to builders and I know that "Builder Contracts" are designed for the benefit of the builder. The earnest money, in all contacts, is there for a specific reason, it states the buyer is serious about making this purchase (provided certain contingencies are met) and willing to risk the deposit provided the buyer has a "change of heart". The earnest money is also the seller's compensation for taking the home off the market. If the market has dropped it's one way for them to recover some cost.

Since this is new construction, certain color choices, finishes have been selected by you and ordered in advance to insure your finished product in time for closing. The builder now has to live with those choice. This deposit may defray some of those selections but not all. Depending on the language in your contract, you may be held liable above the earnest money. So read the contract and if necessary pay a real estate attorney for a review of the contract.

You can plead with the builder, and the contract most likely will prevail. If you had built in a contingency that you needed to rent out your home your may have a shot, if your contract was active vs passive and you did not remove your contingencies in writing another shot. But without knowing the details of your transaction, we can only speculate.

Best of luck to you. I hope it turns out with a win-win for you.
Web Reference: http://www.terrivellios.com
0 votes Thank Flag Link Tue Apr 12, 2011
I would talk to the builder first and if they will not play ball you may want to consult with an attorney. Be aware though, most likely (depending on the amount of the depost you put down or Earnest money) the attorney's fees may be more.

Best of luck.
Spirit
0 votes Thank Flag Link Tue Apr 12, 2011
I agree with Jane. Most builders don't want to hold a buyer hostage. I would talk to the builder and tell them your hardship. In the future I would use a Realtor.
0 votes Thank Flag Link Tue Apr 12, 2011
Davidgg:
Read your contract and see what the details of the EMD are.

Builders will usually give you back your deposit, especially if the home is not built and if closing is 45 days away. They may even have a waiting list of buyers waiting to purchase the home.

Lending guidelines change all of the time and even though your loan was approved at an earlier date something could have changed by now so that you don't qualify for this loan anymore.

Good luck!

~~~~
0 votes Thank Flag Link Tue Apr 12, 2011
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