Home Buying in Claremont>Question Details

Adiaz3, Home Buyer in Claremont, CA

Should I release deposit or partial deposit to my seller before we close?

Asked by Adiaz3, Claremont, CA Fri May 22, 2009

Hello. I am in a situation in which I need help with. My agent is leaving the decision up to me. Basically, the seller needs to rent an apt. I believe we are all putting her into a bit of pressure. According to my agent, the transaction is about 90% done (loan, escrow, etc.). She is asking us to release some of the deposit to help her pay for move-in cost to her apartment if we want to close early (which is what we all parties want incl. us). She gives us no reason to mistrust her and has been very cooperative every step of the way. She even fixed small items when we agreed she would do no fixes. Should I release some funds so she can get situated and we can close early? Is this a big risk? We are making sure with loan officer, if everything is OK on our end. Thanks a lot!

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Answers

16
Adiaz3:

Lets put this in simple terms.

1. Is it a big risk to release funds to the Seller early? Absolutely.

2. Is your loan OK if the lender says so? Absolutely not!

3. Lastly, are verbal confirmations from various entitites involved in a real estate transaction Ok? No.

So what can you do.....

1. Ask your lender to send you in writing the "Underwriting Conditions." These are conditions that either you, the lender within his department, escrow or title, etc., have to satisfy in order to fund the loan. It is a check list of items. When you get it make sure all items that you are responsible for have been received and signed off by the loan underwriter. Do remember, it is not your loan officer that you or your agent talk to, that decides on your loan - it is the Loan Underwriter who is the "Decider." Get the conditions in writing and also make sure that your appraisal has been received by the lender and accepted by the underwriter unconditionally. Make sure you ask and get a copy of the appraisal report. In all probability, you would have paid for it and by law, are entitled to a copy. The left over items on the checklist should only be those pertaining to the lender. Make sure that the underwriter has signed this. If it is not, which happens frequently, ask the loan officer to sign it.

2. Any release of money to the Seller, must be documented and take the advice others have given earlier - get it drafted by an attorney, It will be money well spent.

3. Even if your transaction is 99.9% done, it does not matter. Treat the entire transaction with the same degree of care and scrutiny until it closes.

4. Lastly, remember this always and you should be OK - THERE IS NO VERBAL REAL ESTATE!

Good Luck.

Bob Khalsa
Broker Owner
United America Realty
bobfoxbat@gmail.com
213-926-5847
3 votes Thank Flag Link Sat May 23, 2009
I am not a real estate professional, but a recent (yesterday) home buyer. And what everyone here is saying about a deal possibly falling apart at the last minute is true. On Thurs, my all-cash deal almost fell apart. At 11pm Thurs night people were still working on it. Happily, at 8a.m. Friday, it was a go and we closed yesterday. But it very easily could have been a no-go, and I didn't even have any lenders involved on my side.

Thurs night I was regretting that I had already committed to custom blinds for a house where the transaction was 99.9% done. All that money would have been gone had the deal fallen apart at the very last minute. Similar situation, albeit with different circumstances, but would have resulted in the same problem - I would have been out-of-pocket due to seller failure to perform. Happily, it was all resolved, but that doesn't always happen.
1 vote Thank Flag Link Sat May 23, 2009
Hi Adiaz3:
The agents are correct; you need to make sure that there is either an escrow instruction or addendum in place. I don’t believe there would be a problem with the lender, but again you would need to check. The reason I don’t think it would be is because you can arrange for the deposit to be released before the close if you want to at any time in the transaction, but lenders are strange now. The thing that you want to remember is that if for some reason that the seller doesn’t close, you would not be obligated to give up your deposit and so there lies the little catch. This is something that you have to feel is right, understanding that if she doesn’t close you have a right to your deposit back and if she has it you probably won’t get it back. As long as your agent has verified with escrow that she will be getting proceeds that exceed the amount you are going to release than once it closes it will be hers anyway. So again it would be your call…after all it is your money.
Diana 909-945-5763
Web Reference: http://www.dianam.com
1 vote Thank Flag Link Sat May 23, 2009
Actually, Gina's suggestion to work with an attorney to draft an addendum is another way to do what I suggested (to write an option--you can also have a real-estate attorney draft this for you too). The main point here is that the seller's request (and your ability to comply with it) is not a part of your original purchase and sale agreement. So, if you wish to comply, and if you wish to protect yourself, then you'll need to have another contract in place to document this additional part of the transaction.

Basically, an option is a contract that specifies a set of terms and conditions by which one may acquire something (your new home in this case).

Earlier when I answered, you hadn't explicitly stated that you had waived all of your contingencies, so I recommended the use of the option. Now, that I know you already waived all of your contingencies, I like Gina might lean towards using an addendum (although an option could also work here).

Regardless of whether you opt to go with an option or addendum, you need a contract in place to document this relationship, and you need it to protect you in case the seller--for whatever reason--doesn't perform. I'd still NOT touch your EMD. Also, I'd still NOT touch anything that has to do with your down payment without first having OKed this with your lender--hence my recommendation that the amount collected by applied towards the purchase (whether or not the bank blesses the application of that amount towards the down payment).

Having said all of that, I don't think--but I don't know for certain--your lender would have a problem with this arrangement as long as it's documented. I believe you'd have a MUCH stronger case (to deduct that amount from the down payment) to present to your lender. Plus, this relationship will also get documented on your HUD-1, so that years later (after everyone involved has forgotten all of the underlying details of this transaction) if ANYONE were to go back to re-examine this transaction, then you'll have covered yourself.
1 vote Thank Flag Link Sat May 23, 2009
I would want to know where your Realtors Broker weighs in on this question. In general it is never good policy to do this, but if you do decide to proceed a written addendum should be drawn up by an attorney. The title company may have their attorney perform this service for you. Other question is how soon is closing date?
1 vote Thank Flag Link Sat May 23, 2009
If you signed a paper removing ALL of your contingencies, then she has a right to the deposit if you default. It appears it would not be you who would be defaulting. Has your agent checked with escrow to see if she will be netting some money? A convential sale meaning that the seller has proceeds from the sale and that she will not have to bring any money into escrow to close and that it is not a short sale? I don't know how it will effect your lender if she will be due the proceeds anyway, but a call to them might be in order. Closing early might be helpful and then allowing her to stay a couple of extra days until she finds a place....but the key really is her net proceeds if you feel confident that this will go through and as long as the lender doesn't have a problem with the release of the deposit.

Diana 909-945-5763
Web Reference: http://www.dianam.com
1 vote Thank Flag Link Fri May 22, 2009
Adiaz:


Have you removed all of your contingencies? If you have then it doesn’t matter if you release money to the seller as long as the seller is going to receive money.The key is will the seller be receiving money and have you removed your contingencies. If your offer was on a short sale, then no, you should not release any money because the seller will not be receiving any. If you have not removed all of your contingencies then I probably would not release any money, because you never no if it will close until it closes.

Good Luck
Diana 909-945-5763
Web Reference: http://www.dianam.com
1 vote Thank Flag Link Fri May 22, 2009
Hi Adiaz,
Under no circumstances would I ever recommend a buyer release a deposit to a seller prior to close. And your agent should do the same for you. Taking the emotion out of the equation, please remember this is a business transaction. And I don't know very many people that would make what amounts to an interest free loan, to a stranger with no collateral. Not only that, but the stranger is obviously having financial difficulties of their own. My strongest suggestion is to decline the request, and remind your agent that his/her primary duty is a fiduciary one to you.

If you have any other questions, please don’t hesitate to call or visit our website shown below.

Pat Palmer-Broker/Realtor
Forefront Real Estate
Forefront Mortgage

154 W. Foothill Blvd #A308
Upland, CA 91786

Phone: 909.286.1301
eFax: 909.912.8002

patpalmer@ffhomes.net
Web Reference: http://www.ffhomes.net
1 vote Thank Flag Link Fri May 22, 2009
No, I wouldn't touch the deposit if I were you, because I wouldn't want to give the bank ANY reason to deny your loan out of suspicion. Instead, I'd ask the seller for how much she needs to move into that apt, and I'd write an option (with a refundable option fee) to be able to close earlier, and write that option so that the option fee is applied towards your purchase. Whether or not the bank will allow you to apply it towards your down payment is between you and the bank. Nevertheless, this way you're using creativity to help resolve the seller's issue and mitigate any potential issues with your lender.
1 vote Thank Flag Link Fri May 22, 2009
One more thing…one week is usually enough time to paint in carpet if that helps.
Diana 909-945-5763
Web Reference: http://www.dianam.com
0 votes Thank Flag Link Fri Jun 5, 2009
Hi Adiaz3:

The sad truth is yes she is required by law to give you the keys as agreed, however unfortunately guess what. If she doesn't then your only recourse is court, you see you have given her permission to be in your home. At least that is my understanding. I will also tell you that usually everything works out. But since I'm not in the transaction I'm only responding to the story.

Good Luck:
Diana 909-945-5763
Web Reference: http://www.dianam.com
0 votes Thank Flag Link Fri Jun 5, 2009
Hi Diana, thanks for the reply. The plot thickens.... the place she is moving into, the landlord closes on the property tomorrow. As I've been told by our agent, her landlord will have to re-carpet and paint before she moves in so she can't close tomorrow. A concern for me is if the landlord isn't ready to let her in after the 11th. Question, is she by law (after we sign loan docs or now with the signed offer) forced to give me the keys as we agreed on contract the third day after she closes? We should get keys on Sunday the 14th at 5pm per our signed offer/ contract. I don't want to be an a**hole but I want the keys on Sunday at 5. Thanks.
0 votes Thank Flag Link Thu Jun 4, 2009
Hi Adiaz 3:

Why don't you close early? if you sign tomorrow you should be able to close by Tuesday. Then she would have all of her money. But again if you have removed all of your contingencies in writing, then she will be entitled to the money weather you close or not as long as you do not have a loan contingency and she doesn't cancel. Just a thought.

Diana 909-945-5763
Web Reference: http://www.dianam.com
0 votes Thank Flag Link Thu Jun 4, 2009
Hello everyone and thank you for your help. I'd like to update you on the situation. We somewhat dropped the idea of releasing the funds as my agent didn't discuss it further with us and then found out the seller found a place to move-to. We thought she didn't need it since it wasn't brought up afterwards. However, yesterday my agent calls us and says she still needs the cash ($4500) and she was a bit butt-hurt about why we wouldn't release the funds. Our agent mentioned that she said she has been good and even fixed some items she shouldn't have, has been generous, etc. She has indeed been a very good seller. Tomorrow we sign loan docs and we close on the 11th (1-week from now). I told my agent that we are very open to helping her out and given timing and the fact that we will close very soon I see no problem with releasing the funds. She did mention that she will use some of the money to professionally clean our carpets so that's a plus. Our agent says she poses no or very little risk... she is packed up, we sign docs, etc. Again, thanks for all the help!
0 votes Thank Flag Link Thu Jun 4, 2009
Good point Diana and I forgot to mention that.... according to my agent, he checked with escrow and said she is netting money from the sale so she has a lot of incentive to sell. From your reply, it seems that if I signed to remove all contingencies, then the deposit is pretty much hers or partly hers anyway so it's no problem to release the funds if it won't affect the loan approval process correct?

I am thinking the best think to do is to check with the lender to make sure it's OK , then have her agree that if we release the deposit, she will close early. Our agent said that basically we are helping her in this process because she is "broke" and also that we are basically giving her a small portion of the full amount she is to receive upfront.

Thanks again.
0 votes Thank Flag Link Sat May 23, 2009
Thanks DP2, Pat and Diana.

DP2, I don't understand what "write an option" means. Can you please elaborate? Pat, I love the hard line tone in your message.... I always though our agent should be a bit more like that..... thanks and it makes sense

Diana, I just signed the form to remove all contingencies. I think tomorrow I might sign a couple others as I've been told. This is a conventional sale and she will be receiving the money for her rent deposit, etc. I am actually going to the property tomorrow to do get measurements and show it to my parents. I really don't want to discuss business with her but am afraid she will ask about this and tell me about her situation. We are scheduled to close on the 11th of June (on the contract) however there is a contingency plan to close on June 3rd is possible (nothing has been signed regarding this plan). In order for that to happen she has to find somewhere to live. I don't think 1 week is much of a longer wait so it's really looking like a "no".

Emotion I think is key here. It's probably better that we never met or talked so it can be strictly business. I actually arranged this visit with her not using our agents (which seems easier) however that might not be the best route. I want a smooth transaction and the "nice" thing to do is release however now I am a bit concerned about the bank becoming suspicious, etc. More information is very appreciated and again thank you all! The internet is fabulous.
0 votes Thank Flag Link Fri May 22, 2009
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