Home Buying in Napa>Question Details

Jat, Home Buyer in Napa, CA

$10,000 non-refundable deposit

Asked by Jat, Napa, CA Wed Aug 12, 2009

I've had an offer on a property since March. It was a short sale and I was ok with all of the delays since I was too busy to look at houses from March thru much of July. The bank and real estate agent asked that I raise my offer which I did a few weeks ago. Last week, before any inspections had been done on the property, they asked for a non-refundable $10,000 deposit.

I have very good credit (over 780) have entered into this with a good offer and with good faith and have obviously been very patient, but I’m now seriously thinking about getting an attorney. This seems so out of the blue and wrong. This was never mentioned for the 5 months prior to last week. My questions are; how common is it to ask for a non-refundable deposit like this? Do I have any recourse? As real estate agents, would you permit your client to go through with this offer?

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Chris’ answer
Think that's bad? I have been trying to buy a bank owned home and was ready to put down almost $100,000 for the downpayment but I was just very rudely told by the bank's agent that they now want an either an all cash offer or a $50,000 non-refundable deposit! Its a bummer because the house was a steal but I don't think its worth the risk now.
0 votes Thank Flag Link Wed Sep 9, 2009
This is a tricky question because with a short sale, the lender is usually in control and the regular rules won’t always apply. Since Realtors are not in a position to give legal advice, you should always check with an attorney, but here are some facts about the real estate contract.

Let me explain how this usually works. If you used the CAR residential purchase agreement, see LIQUIDATED DAMAGES – Section 16 which states: “If Buyer fails to complete this purchase because of Buyer’s default, Seller shall retain, as liquidated damages, the deposit actually paid. If the Property is a dwelling with no more than four units, one of which Buyer intends to occupy, then the amount retained shall be no more than 3% of the Purchase Price. Any excess shall be returned to the buyer.” (On the San Francisco Purchase Agreement, Liquidated Damages is under Section 29 - same wording as above.)
In this situation, per the contractual agreement, the 3% deposit amount is automatically kept by the seller.

However, note that this clause may not limit your financial obligation if the Seller claims further damages. If the Seller decides to pursue a claim through mediation or arbitration, the Buyer could end up being liable for an even larger amount than the 3% liquidated damages.

It is important to know when you are in or out of contract, because the liquidated damages apply only when you are in contact. For example, if your ratified contract states you have 10 days to get inspections or 21 days to obtain financing, and those days come and go without your removing your contingency, you are technically out of contract. Whenever you have a counter-offer on the table, you are out of contract until you agree to the terms of the counter-offer, or you counter the counter-offer and the other party agrees to the new terms of the counter-counter-offer. Confusing – but your Realtor can clarify how the contract works.

In your case, it appears the lender countered your original offer with at least two changes in contract terms: a higher purchase price, and a $10,000 non-refundable deposit. If you agree to these terms, you could be entering into a binding contract that would supersede the terms of your original purchase agreement. One option would be for you to counter this offer by agreeing to the higher price but stating you only agree to a non-refundable deposit equal to 3% of the new purchase price.

Congratulations on having such a great credit score, but this has nothing to do with the deposit. The deposit just validates the sincerity of your offer.

Don’t know who you are using for escrow, but Old Republic Title has an excellent program for Short Sales; I would refer you to call Lynde Black at 707-566-4215 to discuss your transaction.

Again, be sure to check with an attorney to understand your rights and obligations, especially if your situation is not covered by the boilerplate language in your contract.

Good luck!
0 votes Thank Flag Link Fri Aug 14, 2009
Thank you all for your input and comments. I would like to say that it helped in my situation but I just learned the following this afternoon...

The bank (1st Federal Bank of California) has now said the house will go to the courthouse steps for auction on August 20th. My offer was 420k and they will be asking 430k on the auction steps. My agent says there is no possible way they will get this amount (she thinks my offer was high).

1st Federal Bank of California has wasted an enormous amount of my time and it sounds like I have no recourse. They have also wasted both of the real estate agents time, their own office staff time AND the previous home owner is now filing for bankruptcy... All for the gamble of making a little more then an additional 2% on the home.

I know many real estate agents are writing Congress about how the banks are treating the average person. Most notably how they are now taking investor cash offers for homes over us ‘non-investors’ (who want to actually live-in and strengthen our communities) because it’s ‘easier’ for the banks. If any of you are interested, please feel free to use my experience and/or this banks name in any way you like.

All the best,

-Jat
0 votes Thank Flag Link Thu Aug 13, 2009
Hi Jat, their request is ridiculous; a $10,000 non-refundable deposit is a deal-breaker in my book. If I were in your position, I would give them the option of taking the next week to agree to a deposit "subject to" your investigations or you are withdrawing your offer and moving on.

I'm not a lawyer, bit it would seem reasonable that if you willingly capitulate to the non-refundable deposit and then seek legal recourse a decision in your favor has a reduced probability.

Best, Steve
0 votes Thank Flag Link Wed Aug 12, 2009
I’d take the bank’s agent and the bank to small claims court. Like Dave says, this sounds like a scam and you should find out what’s really going on. Some bank personnel think they can do whatever they want to honest hard working people (they’ve made you wait 5 months on your house offer!!!) and that there are no repercussions for them. Make it a major hassle in their lives and make sure their supervisors and attorneys have to get involved. They’ll drop the $10,000 deposit request… which is absurd to begin with.
0 votes Thank Flag Link Wed Aug 12, 2009
I would not advise my client to put upa nonrefundable deposit , as there are other homes that are available ( short sales and bank owned propertys ) that are very likely as good a price , if not better, than the one you entered into in March. Al Sovey Heritage Sothebys, Napa
0 votes Thank Flag Link Wed Aug 12, 2009
In California it is not standard practice to have an attorney go over all contracts. However, if you are not represented by a real estate agent it may be a good idea.

Do not agree to a non-refundable deposit. The whole pupose of an inspection contingency or a financing contingency is to allow you to withdraw from a contract without penalty.
0 votes Thank Flag Link Wed Aug 12, 2009
I have never heard of a non-refundable deposit. This seems like a scam. I've sold a few foreclosures this year, and "yes" banks (and their representation) do try to take advantage of every situation, but this is asking too much!
0 votes Thank Flag Link Wed Aug 12, 2009
I suggest to all my buyers and sellers that they hire a Real Estate attorney anyway to go over contracts. This is a huge commitment and you need to be protected. I think it is kind of remarkable that they asked for a non-refundable deposit and I also think that 5 months is an awful long time for a short sale approval. Understand that banks and lenders have been trying to close short sales as fast as they can, (if all the paperwork has been done properly it shouldn't take this long). They are responsible for all the upkeep on properties: insurance, utilities, HOA fees, etc to have a house stay on the market isn't in their best interest. An attorney at this time would be a good idea and maybe a change of Realtors if you are not getting the right answers from yours.
0 votes Thank Flag Link Wed Aug 12, 2009
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