Home Buying in Los Angeles>Question Details

Laura P, Home Buyer in Los Angeles, CA

Seller wants to keep down payment stating damages because we did not get the loan, can this happen without removing loan contingencies? No NBP either

Asked by Laura P, Los Angeles, CA Wed Feb 9, 2011

Help the community by answering this question:


Based on what you say here, no. Also they can be penalized $1000 for refusing to return your deposit without a good faith dispute. Check out paragraph 14.F on page 5 of your purchase contract.
2 votes Thank Flag Link Wed Feb 9, 2011
If your agent won't at least make a reasonable effort on your behalf, ask for their broker. Agents are to be supervised by brokers who are responsible for their actions. While referring you to an attorney is always good advice, there is more the agent can do on your behalf. If they don't realize this, their broker should, so start there first. Let us know how it turns out.
1 vote Thank Flag Link Wed Feb 9, 2011
If not qualifying for a loan were considered the buyer's fault, no one would even apply. It's great that you tried your best and feel bad for not being able to proceed with the purchase. However, beware that your guilty feelings should not overcome what is appropriate. According to what is stated, this was through "no fault of your own," plus you retained your contingency. Banks turn down loan apps every day. That was their decision, so you should be pursuing return of your deposit.
1 vote Thank Flag Link Wed Feb 9, 2011
Hi Laura,

If the loan contingency was not removed and you were not able to secure the loan for whatever reason even though you tried the best you could, you are most likely entitle to having your money returned to you. What is your agent telling you? Escrow cannot release any money to the sellers unless you sign off on it (nor can the escrow officer return the funds to you all that easily). Let us know how things go.
It should work out for you.

Lynn LeGlaire
KW Larchomont
1 vote Thank Flag Link Wed Feb 9, 2011
If you made a good faith effort to obtain financing and you have a properly prepared financing contingency, you should be fine. Your agent is the one who will know the details better than anyone here, what do they say? Your contract will be the controlling document, so review what it says and ask your agent. If they aren't able to answer, ask their broker or if necessary talk to a Real Estate attorney.
1 vote Thank Flag Link Wed Feb 9, 2011
Hi Laura: As long as you did not remove loan contingency and the loan did not get approved not because you intentionally not providing enough documentations to the lender, then you are entitled to receive the earnest money deposit back. Hope this helps.
1 vote Thank Flag Link Wed Feb 9, 2011
Not knowing the full circumstances I can only state, that if you did everything you could in good faith to get the loan, and through no fault of your own were unable to, the Seller does not have the right to keep your good faith deposit, since you did not remove your contingency. Hopefully your agent will have advised you of this fact.
Web Reference: http://www.homejane.com
1 vote Thank Flag Link Wed Feb 9, 2011
Dear Laura,
Best thing is to carefully read your contract. If you are not sure about it, please do hire an attorney. You probably need one at this point.
0 votes Thank Flag Link Sat Feb 19, 2011
Your contract and the way the paper work and transaction has occurred will determine the outcome. The best course of action is for the parties and the brokers to review the contract and see if an agreement can be made. Often times these situations happen because one side doesn't understand the contract. If can be very costly to fight.
Web Reference: http://terrivellios.com
0 votes Thank Flag Link Thu Feb 17, 2011
Hello Laura, make sure your agent didn't have you sign a release for all contingencies. Are you past your time for inspections? There are a few more details that we need to accurately answer you question. I would first speak with your Realtor right away, they should be able to help you remedy your issues.

Good luck,
Heather Paul
Coldwell Banker
0 votes Thank Flag Link Wed Feb 16, 2011
Hi Laura:

There are some good answers from the agents below. Just want to make sure you are using a good agent. They will watch out for your best interest. When I was a new licensed agent, buying my own house, I used an experienced agent to assist me.
0 votes Thank Flag Link Fri Feb 11, 2011
When you say you did not get the loan, do you mean, you did not like the loan options presented to you, or there was no lender able to give you a loan after extensive review of your application.

If on your contract you stated you will get a loan based on a certain interest rate... amortized over a certain period... not to exceed ____ points and there is a loan you could get based on that criteria, but you have just changed your mind, then the seller may have a point... The point is that you could have got a loan, but simply chose not to because you did not like the terms... this is why it is sooo important to get pre-approved prior to making an offer.

Did you remove any contingencies, like your inspection contingency? If you did not remove any contingencies, then you could cancel based on the Inspection/Investigation Contingency... that is virtually for any reason and probably easier than saying you couldnt get a loan....

However, either way, the escrow company cannot just release your money... escrow takes their instructions from fully executed docs signed by both parties. If the seller will not cooperate with the cancellation and recourse for the deposit, you may need to go to arbitration (if you both signed the arbitration clause) First thing I would do is contact your agents manager and get thier opinion after reviewing your contract...
Good luck!
0 votes Thank Flag Link Thu Feb 10, 2011
Hi Laura;
Assuming that you did not willfully misrepresent your financial qualifications to the seller at the time of the offer, and you used due diligence to obtain the loan specified in your loan contingency, then you should be able to retain your deposit, if you were unable to obtain your financing. The escrow company cannot unilaterally release your deposit to you, despite whether you have a liquidated damages clause or not, because release of funds must be mutually agreed upon by the parties. However, during the time while you are negotiating for the release of your deposit, the escrow can be cancelled, the owner can resell the property, and the deposit can be held in a separate escrow account pending release. Courts look VERY unfavorably on sellers holding on to a buyer's deposit without cause; the seller can be penalized $1000 for refusing to return your deposit without a good faith dispute, as per the contract, and courts can go even farther if necessary.
You do not say why the loan failed, and whether you still want to purchase the property. Did you not qualify, or did the property not appraise at value? If you still want the home, I suggest getting all parties together to renegotiate.
If you want to cancel, write a clear concise letter to escrow explaining that you want to cancel escrow based on the loan contingency. Get your agent to negotiate the cancellation for you; that is their job. If they are unwilling, contact their broker or manager, and call the Department of Real Estate if you are not being fairly or adequately represented. And select a new agent prior to your next purchase.
Best of luck,
Deborah Bremner
The Bremner Group at Coldwell Banker
REALTOR, 00588885, ABR, CDPE, eAgent, CSP, SFR, HRC, CRE
(O) 310-571-1364 DIRECT
(D) 818.564.6591
0 votes Thank Flag Link Thu Feb 10, 2011
Whatever the legality of it is or whether is proper or not, the real issue is that whenever there is a disagreement between the parties, the escrow has to be independent and equal to both sides... so the deposit will not be released absent mutual consent... the best thing is to try to work out a decent compromise and not to take advantage of one another... unfortunately many times people (specially attorneys) let their ego get in the way and instead on focusing on resolving the issue in a decent ways, they focus on escalated verbal bravado which is counterproductive...

If the other party is not being reasonable, don't be afraid of fighting for your rights, but evaluate the cost-benefit side of it. My staff attorney is a very experienced real estate litigator that understands the best way to resolve issues is to avoid litigation... that is the type of counsel you need to get, and that is why he is in my office to provide complimentary advice to my clients.

Best of luck, and do what is best for you...

Ron Escobar, MBA
Broker & General Contractor
Web Reference: http://shortsalecentral.org
0 votes Thank Flag Link Thu Feb 10, 2011
Talk to your agent's broker. If you want the house did you try another Lender?
0 votes Thank Flag Link Thu Feb 10, 2011
Hi Laura,
All are good responses below. I just want to add that your attempt at loan approval should have been based on your EXACT financing terms on page 1 of your purchase contract. FOR EX) if your agent wrote in that you're putting 20%, but your loan approval rejection was based on putting 10% down with a 2nd loan for the other 10%, then it would appear you weren't acting in good faith and your deposit might be jeopardized.
I hope this makes sense to all buyers about there. Sometimes there is more to it than meets the eye with the loan approval contingency.
Based on your post, the assumption is that you were acting in good faith, in which case you should be entitled to your deposit back.
Best of luck.
Suzanne (Suzie) Glaser
p.310.383.1141 | http://www.LAVillageREALTY.com
RealEstateSuz@gmail.com | lic # 01390707
(a division of Power Brokers Int'l | lic # 01520327)
0 votes Thank Flag Link Thu Feb 10, 2011
Hi Laura,

As Jane said....if you still had your loan contingency in place, then your agent should be able to help you get your deposit back, less any reasonable, actual buyer costs. That is the purpose of the loan contingency. The best course of action is to work with your agent and his/her broker on this...and do not sign anything you are uncomfortable with unless you have spoken to an attorney (which might not be necessary).

Good luck and so sorry it didn't work out.

0 votes Thank Flag Link Thu Feb 10, 2011

It's really difficult to make these kinds of assessments without all the information, however if you got a pre-approval from a lender without any willful misrepresentation on your part, then got denied on the loan and notified the listing agent prior to the loan contingency expiring (even if you didn't this is a gray area because the C.A.R. Residential Purchase Contract requires written removal), there is no reason I can see for them to legitimately keep your deposit.

You also need to understand how the process works. Assuming the deal is in escrow with a title company, your deposit funds cannot be released to either party without mutually agreeable cancellation instructions. It comes up from time to time when angry, frustrated sellers threaten to keep deposits and sometimes even try, but we have been able to make these situations go away in these few instances by counseling patience to our buyers and working on the listing agent. Sellers frequently cool down when the realities of trying to actually get the money are explained to them. Give it a week or so and let your agent work on it. If you don't have one, a letter from an attorney might do the trick. If your agent is unwilling or unable to do this, go to his/her broker for results.

If you/your agent can't get them to give it back, the C.A.R contract also calls for mediation before pursuing court or arbitration. If there is one party who is clearly in the wrong, a mediator will hammer on them to see the light. This is your best shot before it gets expensive.

The foregoing is all predicated on your statements about the situation, so you might want to consult an attorney as they can tell you for sure once they have all the facts.

Best Regards,

Lance King/Owner-Managing Broker
DRE# 01384425
0 votes Thank Flag Link Thu Feb 10, 2011
Hi Laura,


+ unexpired loan contingency
+ notification of lender denial of credit within required time periods
+ active removal clause agreed to on contract

- gross negligence or misrepresentation from buyer

= No reason buyer shouldn't get his money back.

Hoping you've initialed the arbitration clause on the RPA!

Good luck to you!

ps: I also like Jerry Current's answer below. Another note, if you're in escrow currently, the seller cannot complete a transaction with another buyer until you cancel your current contract. It would be to your advantage not to do so until he agrees to return your full deposit.

Allan S. Glass
ASG Real Estate Inc. ®
149 S. Barrington Ave, Suite #660
Los Angeles . CA 90049
Direct: (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
Web Reference: http://www.asgreinc.com
0 votes Thank Flag Link Thu Feb 10, 2011
Laura it is clearly going to depend if you notified them of the loan denial within the specified dates on your purchase agreement, if you did that they should not be able to keep it. If you are outside of your dates , you may lose it. please review your contract, your buyer broker should be guiding you through this, if you were buying alone without an agent, you may want to consult an attorney
0 votes Thank Flag Link Thu Feb 10, 2011
Hi Richard, he does state that we made substantial misinterpretations - we do not understand this. We were applying for a loan, we gave the bank all the info they needed so that would not be the reason, we were waiting to get approved, we thought we would get it, we were denied (is this misleading?)
0 votes Thank Flag Link Thu Feb 10, 2011
If you have not removed the loan contingencies, it is within your right to cancel the deal due to your inability to get your loan and get your deposit back. Also, the maximum the seller can ever obtain the good faith deposit is 3% of the purchase price.
0 votes Thank Flag Link Thu Feb 10, 2011
Doesn't sound like it. Remind the seller that they can be liable for damages for holding your deposit. Did you mislead the seller about your loan type or loan qualifications?

Richard Schulman
#1 Listing and Selling Agent
Keller Williams Westside Realty
0 votes Thank Flag Link Thu Feb 10, 2011
Thank you all for giving us such quick answers. Our agent only said that we need to talk to a Real Estate Attorney. I believe our agent could reply back saying "buyer did not qualify for loan, gave you proof therefore they are entitle of their deposit" but he's not doing so. We feel very lost - we are first time home buyers.
0 votes Thank Flag Link Wed Feb 9, 2011
I don't know how to add info so I'll write an answer. We did everything we could, still the loan was not approved. What do you mean "no fault of your own" I feel not qualifying for the loan is our fault, isn't it? then he has the right to keep the deposit?
0 votes Thank Flag Link Wed Feb 9, 2011
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