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Short Sale and EMD

Asked by Ncchong1, Las Vegas, Las Vegas, NV Sun Oct 14, 2012

6 mos ago, I made an offer for a short sale and the seller agreed on my price and immediately asked me for my earnest deposit which i provided. Now, I just found out that the Bank took the property for auction and the property was sold at a trustee auction. Can this happen? If so, how can the seller ask for my earnest money deposit and yet the bank is selling the property when it was a short sale? Did the listing agent or seller commit fraud? Can I take legal action?

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It sounds like something was going on between the agent and the seller. You should hire an attorney.
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0 votes Thank Flag Link Fri Oct 19, 2012
Indeed, if you are getting your money back there is nothing to worry about. If not then you need to take action. Usually the EMD is taken at the time escrow is opened, not just when the seller accepts. You should find out who held that deposit. It should be sitting in an escrow account somewhere, not the sellers'.
0 votes Thank Flag Link Sun Oct 14, 2012
You must take legal action If they cashed your earnest deposit check and they are not returning it.

In obtaining a short sale approval, earnest deposit checks are not cashed but until the short sale is approved by the bank. => The key player here is the agent involved.

The bank's foreclosures are handled by a legal department that is separate from the short sale department. This legal department proceeds with the foreclosure process unless they are contacted either by the bank's short sale department to hold on to the foreclosure because the short sale has been approved or by the property owner to reinstate the loan.

A real estate attorney could help you to scrutinize who is at fault here. http://www.avvo.com

Good luck.
0 votes Thank Flag Link Sun Oct 14, 2012
Until a short sale is approved by the Bank, it is only an offer.
While the Bank is processing the approval of the Short Sale, the Foreclosure process does not stop.Just because the Bank has an offer in hand does not mean they have to accept it.
You will be able to get your deposit check back. You never opened escrow correct?
0 votes Thank Flag Link Sun Oct 14, 2012
No one committed fraud, It happens that the bank is will not stop the foreclosure process even there is a short sale. As long as you get your money back, you do not have any grounds to legal action. And why do you wants to take a legal action? Did you try to get you money back, and you could not? Your money is in Escrow which is a third party. Just ask for it.
0 votes Thank Flag Link Sun Oct 14, 2012
EMD should be deposited to escrow once escrow opened (usually once bank issues short-sale approval). It is best you contact your realtor and/or escrow company that was handling this transaction.

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0 votes Thank Flag Link Sun Oct 14, 2012
I would turn to your agent to attempt to rectify this matter. He or she should have included a Short Sale Addendum that says all inspections and the earnest money deposit does not have to be deposited until approval from the sellers bank has been received. Was there an escrow company associated with the transaction? I am asking this as usually unless in writing the money stays in the escrow until either the transaction closes or cancels. I would also highly recommend seeking the advice of a good Real Estate Attorney to assist you in this matter.

Good luck and Have a great day,
Heather Paul, Realtor
Coldwell Banker
310-586-0364
http://www.HeatherPaulOnline.com
0 votes Thank Flag Link Sun Oct 14, 2012
Most unfortunately, your money went to someone in dire straits, who has nothing to lose by taking your money. Even if you got a judgment, the money is probably gone forever (or they may file bankruptcy, too). However, if you even suspect there is a chance, I would try to get it back. Check your paperwork for arbitration/mediation clauses.
0 votes Thank Flag Link Sun Oct 14, 2012
When you submitted your offer you should have included the Short Sale Addendum Form (SSA). On the SSA you can state if the EMD is deposited at time of offer or deposited after the seller receives lender approval. It is not uncommon for the seller to ask for the deposit at the time of offer to make sure the buyer is willing to stick through the process. Review your paperwork and you might find the answer to your question.
Good luck,
0 votes Thank Flag Link Sun Oct 14, 2012
Hi,
Sounds like you did not have your own representation? Your agent should not have allowed your funds to be at risk. If the bank had not given approval at the price you offered, you really don't have a deal. I agree with the other posts that indeed your deposit should be held in escrow, but even at that, I would not have allowed my buyer to submit ANY monies until we could actually open escrow. You would not want to tie up your deposit for several months especially if you were looking at putting offers in on other properties that may not be selling short.
Call your agent (if you put the offer in through your own agent) or it sounds like you maybe just used the listing agent? Another reason to have your own representation and work with a buyer's agent who will work diligently on your behalf.
Hope you can get your deposit back without having to get into litigation..would be much faster and easier if your funds are being held in escrow!
best,
Lisa
0 votes Thank Flag Link Sun Oct 14, 2012
You do need legas help. Were you working with a realtor? the EMD should be in a held in some type account. Each state has different rules. The seller never holds the EMD.
0 votes Thank Flag Link Sun Oct 14, 2012
Can the bank do what they did, obviously they can. Can you take legal action, you can but you will loose and the lawyer will just waste your money. A seller doing a short sale is trying to make a sale before the bank forecloses. The bank does not have to accept a short sale and in your case they did not and moved to foreclose and ignore the offer to purchase the house. Your earnest money should have been put into the escrow account by someone, you don't tell us who you gave it to, but you should get it back. You have no legal action in my opinion, which is just my opinion. This is common in short sale, which are never easy and always frustrating.
0 votes Thank Flag Link Sun Oct 14, 2012
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