Home Buying in 90066>Question Details

Rookie Buyer, Home Buyer in 90066

Seller refuses to release our deposit when we canceled the deal because of bank disapproval of loan, despite the presence of contingencies. What next?

Asked by Rookie Buyer, 90066 Tue May 4, 2010

We canceled our condo purchase deal because our bank did not approve the building. Not a short sale or REO. Neither the loan contingency nor the inspection contingency was removed. However, the seller refuses to release our deposit, claiming that he suffered a financial loss of missing other opportunities in the market, and that he offered a private loan that we decided not to take.

It seems to me, based on my research, that we are entitled to our deposit in this situation. I wonder if anybody knows what would happen if the seller insists; do we go directly to a small claim court with a real estate attorney? Any other thoughts you might want to share about our case? We are in California. Thank you so much!!!

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22
Dear Rookie,

Thanks so much for posing this question to the group. The answers below are an excellent example of how technology and social media platforms can help inform consumers and help agents and brokers become more educated.

I agree there are two paths to take. Which one you choose will ultimately be determined by your goal in this transaction. You must first decide if you want out of the deal or if you want to find a way to save this transaction and buy this home.

If you decide you want out, the CAR contract gives you protection and requires you follow proper protocol to protect your position. As Ms. Bremner and a few other point out, you would not want to alter your offer or propose a new direction that could diminish your ability to get your deposit back. Determine if arbitration has been agreed to and seek the advice of your broker's legal counsel.

If, however, you still want to buy and own this home it will require a creative solution. One such solution can be seller financing. Some of the best buying opportunities come when it is most difficult to sell. These opportunities also require diligent thought and good professional advice. Real estate is cyclical and just as run away prices in the early 2000's didn't mean that prices would always go up, our current depressed market does not mean that prices will always go down or that lending will not be available in the future.

Good advice is solution based and starts with answering the right questions. Make sure you know which path you (or your client) would like to take before you act. That's my lesson from this thread.

Keep posting, good luck, and thanks again.

Allan S. Glass
President
ASG Real Estate Inc. ®
149 S. Barrington Ave, Suite #660
Los Angeles . CA 90049
Mobile: 213.952.9052
Direct: 213.973.8637 (213.97.FUNDS)
Fax: 213.947.4461
E: asg@allanglass.com http://www.asgreinc.com
CA License: 01154002

Twitter: http://twitter.com/asgreinc
Linkedin: http://linkedin.com/in/allanglass

Visit Allan’s Blog: http://allanglass.featuredblog.com
2 votes Thank Flag Link Thu May 6, 2010
Take a look at eh purchase contract. On the first page, paragraph 2 , it should have mention the terms of the financing that you are willing to accept a priori. So if your seller financing did not correspond to that paragraph 2, you are ok.
But maybe your agent did not fill that paragraph 2?

Also did you get a notice to perform in order to remove the contingencies? If seller did not give you a Notice to perform, you are in even better shape.

next, take a look at page 5 of your purchase agreement ( ie your offer). Did you initial separately the paragraph 17? It tells you that in case of disputes, you can have it resolved by an arbitrator. If you did sign , you don't go to court. You arrange for a mediation. They cost but it's faster than court.

You an call an attorney and see if it's a case for them. Watch out, you do not want to hire an attorney who is going to charge you by the hour. You could end up paying all your deposit money in attorney's fees. If you are looking for a good attorney, I can recommend a few for start.

This should not be such a big case to deal with. Maybe you can just be firm and resolve it amicably. Don't forget that until both parties agrees the funds are stuck in escrow, that can last for years! Usually after a while one of the parties give in because the money is not available anyway until you both agree.

I am available if you need more info,

MURIEL LEVIN
(323)363 9140
Realtor, Certified negotiator, Specialist in Foreclosure Resources, REW
AGENT IMMOBILIER EN CALIFORNIE, Los Angeles
Your friendly help in the real estate business
Web Reference: http://www.muriellevin.com
2 votes Thank Flag Link Wed May 5, 2010
Hello Rookie,

First of all, let me say Im so sorry you are in such a situation. Its really unfortunate. The first step, obviously is read the mediation clause in the contract and attempt to work this issue out. In the mean time, you continue to act in good faith. Any negative acts on your part may be used against you. Next, I recommend you call the legal CAR hotline, it's free to you and they will advise you as to your next step. Good luck. Here is the number for the CAR legal hotline : 1-213-739-8282.

Kamal Randhawa
Broker
510-932-1066
1 vote Thank Flag Link Wed May 5, 2010
Dear Rookie;

A few corrections to some comments made below.
The seller can, in fact, market and sell the property to another buyer before he returns your deposit. The mechanism for this is that the parties cancel the escrow, but disagree on the release of funds. The escrow company puts those funds into a new "holding" escrow, pending a decision between the parties as to release. Your deposit is not "leverage" and should not be used as such. Your best argument is that you are operating in good faith. Continue to do so.

Did you sign mediation and arbitration clauses? They are included in the standard CAR form, but must be initialed by both parties in order to be in effect. If not, any dispute must be settled through the use of attorneys, if the parties cannot come to agreement.

Some questions to ask of your broker/ agent: during the term of your escrow, was the property listed in the MLS as "looking for backup" or "pending"? If they had the property listed as "looking for backup" and received no offers, they will be harder pressed to say that they missed out on better opportunities during your escrow period. If they obtained a backup offer, then they are not damaged. If the property was listed as "pending", it was their choice not to continue to market the property during the escrow period.

The point of a financing contingency is to protect you in the event that you cannot obtain a loan. The seller cannot force you to obtain any financing OTHER than what you put down in your financing contingency.

If you really want out of the transaction, then don't negotiate for the owner to carry a loan. If the lender won't lend for you now, the odds are good that you won't be able to refinance down the road, or sell to a new buyer when the time comes.

Deborah Bremner
REALTOR, 00588885
(D) 818.564.6591
TheBremnerGroup@gmail.com
Blogging at: http://TheBremnerGroup.com/blog
1 vote Thank Flag Link Wed May 5, 2010
Actually, you could have negotiated the duration (and other terms [interest rate, payment amount, periodicity of payment, etc]) for the seller financing. If you still like the home, and if the financing were the only issue holding things up, then you could still work with your agent to counter a final offer with more favorable terms. For example, you could ask to do a wrap, amortized for 30 years, with (or without) a 10-year balloon, with a stepped interest rate (2% for the 1st year, 3% for the 2nd year, 4% for the 3rd year, 5% for the 4th and subsequent years), with no pre-payment penalty, with a subordination clause, with a movement clause, and with the first payment deferred for the first 6 months.

Now, the seller might not go for all of that, but you can use your newly gained knowledge about your rights to the deposit as leverage, and remind him that until he either agrees to your new terms or releases your deposit that he'll CONTINUE to cause himself to suffer MORE financial loss of missing other opportunities. This way you will have effectively put the ball back into his court.
1 vote Thank Flag Link Wed May 5, 2010
I cannot advise specifically as I am not an atty or privy to your personal contract, nor do I practice CA Real estate. However, In AZ we have a financing contingency and if "in good faith" you were unable to get final approval for a loan and in fact were denied you can cancel and receive your earnest deposit back. If for some reason the seller discovered you changed terms or programs that affected the Close of escrow or ability to close then they could have a case against you and your earnest $. Typically the earnest $ is held with the title/escrow company in the case of dispute the lawyers review pretty quickly the claims of the parties and decide "as a third party" who likely to release to but it can be held up if unclear circumstances are in play.
Go back over the contract and terms you signed with your Realtor, sit with their broker as well, and get their opinion on how the contract was performed upon and how they executed the contract with you. Beyond that, if not clear, then seek the attorney advise.
Basically if you can explain to seller:
1. I acted in good faith
2. Was unable to perform despite it
3. Therefore deserve the money back
You should get it. There must be something in between 1-3 above that makes title/escrow not release to you.
Good Luck but do review your contract again!
Laura Myers
Keller Williams AZ Realty
http://www.LauraMyersRealEstate.com
0 votes Thank Flag Link Thu Nov 4, 2010
You've received some of the best advice to consider in evaluating the "how to" part of your dilemma. The what to do next in a situation where the other party refuses to play fairly isn't quite as clear cut or easily resolved, as you are finding.

In a purchase contract there are conditions and stipulations that the parties must abide by, among them is the financing condition. If you or your agent used the "standard" CAR purchase agreement (California Association of Realtors), or a version similar to that, it clearly states conditions, causes and effects and even remedies. If all parties played fairly and did what the agreement said, the sort of issues the seller seems to be having would not surface. Your financing might have been affected by the fact that the condo had issues that were not in line with the very financial package being processed for you. That being said, you don't truly need to "prove" much to anyone, all you would need is something from the lender indicating their unwillingness to grant you the financing.

The crux is that if the seller continues to refuse to "release" the sale from the escrow company (presuming that an escrow was used), their hands are tied and they will not follow a unilateral instruction for such issues/disputes. You would be well served to bring the matter to an arbiter or mediator, depending on the amount you're attempting to retrieve. Likewise the small claims court will hear such cases so long as your "losses" are in the amounts they handled.

I have helped folks through this sort of situation and sometimes (more often than not), the court finds on behalf of the innocent buyer. However, you have to have a plausible argument to win a legal dispute, and not a whim that caused you to "change" your mind about the purchase. Good luck.
0 votes Thank Flag Link Thu Nov 4, 2010
Contact an attorney and have them review your contract to see what your options are.
Web Reference: http://www.garygeer.com
0 votes Thank Flag Link Thu Nov 4, 2010
And the seller must disclose that the sale is "subject to mutual release" if you have not both agreed to sign off on the contract and the earnest money has not been returned.
That will limit the seller's ability to have the house under contract with a new buyer, I hope you can work it out directly with the seller or his/her agent.

Amanda Pohlman
Howard Hanna
(216) 348-3032
Shaker Heights, Ohio
0 votes Thank Flag Link Thu Oct 28, 2010
Meditation. Sometimes all it takes is for all envolved to sit down together and talk about the situation and agree on a solution. Mediation is a win win solution where a court case is a win loose situation. Someone in a court case is going to loose and someone will win. The cost of attorneys and the court fees most of the time out weigh the money envolved. Contact a certified mediator for your State.
0 votes Thank Flag Link Wed Oct 27, 2010
If you have a purchase contract, it should state that your deposit will be returned to you up to and until you remove all of your buyer contingencies (there is a FORM That the other agent for the seller would have had to send you and your agent would have had to turn over to you). You would know it, it says "Buyer hereby removes all contingencies" and you would have signed it. The seller cannot keep your deposit money unilaterially, but you must send a cancellation letter and there is a cancellation instruction Form,again, which should be used by your agent and is sent to the seller for signatures. If you do not have agents, but an open escrow, you must sign a letter stating you are cancelling- the escrow officer cannot keep the deposit from you legally- they are a "neutral, 3rd party." Talk to them- get the letter to them- and if the seller refuses to sign off, you probably signed an "Arbitration" clause in your contract. If you did, you would then get a neutral arbitrator to determine the outcome (most likely in your favor).

All of this of course, is my opinion- it may be wise to get a letter from a real estate attorney who can evaluate your particular contract - for $150, it is probably worth it!
0 votes Thank Flag Link Tue Oct 26, 2010
I agree with Deborah Bremner. And I would like to add: if your deposit is less than $7,500 a small claims suit would likely be the quickest way to resolve your dilemma.

Lots of Luck.
0 votes Thank Flag Link Wed May 12, 2010
Rookie Buyer:

Aptly named!

The questions that you have asked and are asking should have been answered by your agent. Do you have an agent?

Does your seller have an agent?

Are you both using the same agent?

If there is no agent involved, good luck pursuing your transaction based on the free advice from agents in this forum. While I agree with much of what has been said you cannot expect the opinions of real estate agents to have significance in a court of law – even in small claims court.

Try this – “Your honor, the advice I got from agents on Trulia.com was…” and I don’t think the judge will allow you to finish the sentence.

Good luck. Maybe it is time to get real legal advice.
0 votes Thank Flag Link Thu May 6, 2010
Please pay attention to Deborah Bremner's answer. She is right on! And, I wish there were more knowledgable agents like her in our industry.
0 votes Thank Flag Link Wed May 5, 2010
Hi,
The questions that comes to mind for me is whether or not you were within your contingency period for inspection when you decided not to purchase. You can cancel for any reason during that time. If you had waited or prolonged that period for some reason, I am not sure if the seller has a case. I would contact a real estate attorney and find out how to proceed. If seems that you should get your deposit back but it's curious that the seller won't release you from the deal because the inspection contingency period is usually not more than 17 days. That's not that much time off the market. Contacting an attorney and telling him all the details of the contract probably the best thing you can do.

Good Luck with it.
Lori
0 votes Thank Flag Link Wed May 5, 2010
I agree with John “If the seller insists on refusing to cancel, than how you would deal with it depends on whether or not you agreed to mediation & arbitration in the contract. If so, than that is the way the dispute would be handled in lieu of going to court.” That being said, this can take some time and you will not get your money back until this is complete, assuming that you "win". Although, in most cases its a lose, lose.

Also, if the seller is so concerned with market time. Does he realize that he can not accept another offer while he’s still under contract with you? He must rescind your offer before he can accept another (and go back on the market as “active”). Just my two cents.
0 votes Thank Flag Link Wed May 5, 2010
DP2, I like your style. Excellent suggestion.

Rookie Buyer, this is a great opportunity to turn your loan misfortune to your advantage. If the Seller truly wants/needs to sell and the building is truly unable to be financed then he is left with either cash buyers, who would likely pay far less, or with the prospect of financing other "retail" buyers.

If financing is the only hindrance to owning this home, offer to accept his seller financing under your aggressive terms. Make sure to leave yourself plenty of time for the market to catch up with values and for lenders to return to the building. You may even offer two options; one would be to finance under your terms or two drop the price and finance under his terms...

Be sure to remind him of his options, should you decide to walk from the deal. It seems unlikely he will find a buyer able to be financed or willing to pay your price now that the complex can't be financed.

Best of luck!

--
Allan S. Glass
President
ASG Real Estate Inc. ®
149 S. Barrington Ave, Suite #660
Los Angeles .  CA  90049
Mobile: 213.952.9052
Direct: 213.973.8637 (213.97.FUNDS)
Fax:  213.947.4461
E: asg@allanglass.com
http://www.asgreinc.com
CA License: 01154002

Twitter: http://twitter.com/asgreinc
Linkedin: http://linkedin.com/in/allanglass

Visit Allan’s Blog: http://allanglass.featuredblog.com
 
0 votes Thank Flag Link Wed May 5, 2010
Dear Rookie,
I am assuming you have a copy of your purchase contract. There shoud be a section for loan contingency which allows for the cancel of the contract and in such a case and a return of your deposit through escrow.IF you have not removed those contingencies you should have your deposit returned.

You have a right not to accept private financing if you choose, you should not be penalized for that. As far as the "missed opportunity" issue is concerned, the seller has the right to look at other offers as well as yours.

The seller does have to sign off on the return of deposit with escrow and that's probably where the issue lies.

Your agent should have access to the brokerage legal team, I would get them involved as well as both Brokers from each office to resolve this dispute.
0 votes Thank Flag Link Wed May 5, 2010
Hi There,

Sorry to hear about your situation. If the situation is as you describe, you would be entitled to the refund of your deposit upon the cancellation of the transaction. If you are still within your contingency period and have not removed them, it makes no difference whether or not the seller missed other opportunities in the market - you are still entitled to the return of your deposit. And why would you be obligated to take a private loan from the seller? If your deposit is in escrow and the seller is refusing to sign the escrow company's cancellation instructions, than the escrow company unfortunately would be unable to release the deposit, unless there was a clause in the agreement that dictated otherwise, as they would require mutual instructions from both buyer and seller. I would recommend speaking to a real estate attorney as soon as possible, who can hopefully get the seller to act by writing a persuasive letter to him...

If the seller insists on refusing to cancel, than how you would deal with it depends on whether or not you agreed to mediation & arbitration in the contract. If so, than that is the way the dispute would be handled in lieu of going to court.

Good luck with your situation. Hope this info is helpful...

John Barry
DRE #01856079
Coldwell Banker Residential Brokerage
Cell: 323-810-7976
Email: john.barry@coldwellbanker.com
Facebook: http://www.facebook.com/RealtorJB
Twitter: http://twitter.com/RealtorJB
0 votes Thank Flag Link Wed May 5, 2010
Rookie Buyer,

The seller must release the deposit if you are still within the contingency period. Seller cannot market the property to another buyer until he cancels the contract so "still missing opportunities". Luckily the funds are held in escrow and will not be released until you both concur.

Sellers are aware that buyers have a 17 day free look at the property and if for any reason buyer decides to cancel the deposit is returned. It didn't have to be the loan, it could have been your cell phone didn't receive enough bars at that location or whatever you want it to be.

If the seller had a fear of missing other opportunities they could have accepted your offer and stated that they would continue to market the property.

Talk to your agent and tell s/he to talk to the listing agent.

Seller can not insist you both must agree.
0 votes Thank Flag Link Tue May 4, 2010
To Dp2: thanks for your answer. The seller's financing requires a short period before it should be repaid. We're not sure if banks would change the policy that led to rejection of the building that soon, to give us refinancing within that time frame.
0 votes Thank Flag Link Tue May 4, 2010
Time to get an attorney. Just curious, . . . why didn't you go for the seller financing?
0 votes Thank Flag Link Tue May 4, 2010
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