Home Selling in Manhasset>Question Details

Minnie, Home Seller in Sands Point, NY

Am I entitled to keep my buyers deposit, who went for a mortgage in bad faith?

Asked by Minnie, Sands Point, NY Wed Jul 14, 2010

Our buyer assured us before contract signing,he would have no problem getting mortgage.he put down a 10% deposit. We gave him a 45 day mortgage contingency. After 42 days he notified his lawyer he was rejected by Wells Fargo and now wants a two week extension to go to his brother's mortgage company. I asked him by, phone was he positive he would be able to get mortgage now from his brother's company ? he replied absolutely. We granted him a 2 week extension. After 10 days we were notified he was rejected now by his brother's mortgage company. The reason being both times he had bad credit. The buyer is in the real estate business himself. He is not a lay person with no knowledge. He had to know before going into this process that he had a major credit problem.Can we keep deposit due to bad faith?

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Whethere he tried his hardest or not, you are bound by the contract
1 vote Thank Flag Link Wed Jul 14, 2010
Here's my two cents. This is a lawyer state, where is he or her and what does the contract say? It was always my understanding that the one time a seller has to return the deposit is if the buyer could not secure financing and that seems to be the case here, he doesn't matter what he assured and that he is a real estate professional, you have to abide by the contract.
0 votes Thank Flag Link Wed Jul 28, 2010
Knowing the real estate market here on LI, I am going to assume that your house is selling for over $1 million if it is in Sands Point, or close to it. This brings different issues. The big question is whether this person brought you a pre-approval from Wells Fargo when they made the offer. As someone else said, were you selling this on your own, or did you have an agent. if you had an agent, even if you did not know that someone should have a pre-approval, they should have asked for one. Although this person may have been qualified for a loan under $729,000, there are much stricter guidelines once you go over that at most banks. I am not sure that even if his brother has a mortgage company he would have access to all the lenders who can be used for larger loan sizes.
When you say bad credit, as someone else suggested, what used to be considered good, is now in the fair to bad category. What your buyer might need is someone who really knows what they are talking about to analyze his income and credit to see if it is something that will work with other lenders who may not be credit score driven, or will work with lower scores.
There is also one other issue that could be coming into play here. If this person is a real estate agent or broker, it could cause problems as some lenders do not want to do loans for people who are agents or brokers.
Now this brings up another issue for all the agents who think that the best place to refer someone is Wells Fargo. Even though these loan officers only work for one company, they don't always know guidelines. Just because they don't think they have to. Or think they will talk their company into doing an exception. The most important thing about these loan officers is that they do not have to take, and pass, the SAFE test, or any state test, that is required for any loan officers working for brokers or mortgage banking companies.
0 votes Thank Flag Link Thu Jul 22, 2010
i'm not a lawyer nor a real estate agent so for what its worth here's my 2 cents:

a) the buyer notified you on day 42 (vs a 45 day deadline).
b) you granted a 2 wk extension.
c) the buy notified you on day 10 (vs a 14 day deadline).

the mortgage market has changed dramatically and it doesn't appear the buyer breached the contract. i believe you're wasting your time holding onto to his deposit. I suggest you work with the buyer as suggested by some of the other responders or cut the cord and return the deposit.
0 votes Thank Flag Link Thu Jul 22, 2010
ahhh.....Allen - I misunderstood!
Glad we agree!
0 votes Thank Flag Link Thu Jul 15, 2010
Hi Debbie
Perhaps I wasn't clear. I was saddened by the other advice, the only good advice offered was to speak with her attorney. The other advice that was offered was best kept to themselves. Especially in New York, one of the most litigious states.
0 votes Thank Flag Link Wed Jul 14, 2010
@ Allen: "As a Realtor it saddens me to say that the only good advice the other Realtors have given you is to speak with your attorney"
Allen - I am a little perplexed as to why you are "saddened" by Realtors advising someone to seek legal advice.................for a legal issue??????
As Realtors, we cannot give legal dvice, and that is precisely what Minnie needs.
No one here can tell her whether she may keep the deposit or not....unless they have Esq after their name.
0 votes Thank Flag Link Wed Jul 14, 2010
Just curious - you said your buyer "assured you" he would have no problem getting a mortgage........

In what way did he "assure you"?

Did he simply tell you it would be fine? Did he tell you what his credit score was?
Did he show you a pre approval letter from Wells Fargo?
Did you have anything in writing, or did you just go by his verbal assurance?
Are there Realtors involved in this sale, or are you buying on your own?
What exactly is his "major credit problem?
It doesn't take much these days to be turned down for a mortgage, as credit is tighter than ever......as it should be.

The answers to the above questions might help shed some light on this.

It seems as though he applied for a mortgage in good faith - twice......whether he should have known he'd be approved or not, remains to be seen.
Speak to an attorney.
0 votes Thank Flag Link Wed Jul 14, 2010
Hi Minnie
As a Realtor it saddens me to say that the only good advice the other Realtors have given you is to speak with your attorney. The only intelligent advice is from Dp2 from Virginia---not a Realtor! You have a technical contractual question which must be addressed by your attorney. He can also speak with the buyers attorney to try and find out what is really going on. Even if the buyer did try to get a mortgage in good faith he obviously has problems obtaining a one and if there are no other options stop wasting your time and find another buyer.

Allen Bauman
Century21 Yve R. E.
Licensed R. E. Agent.
NYS Certified Residential Appraiser
0 votes Thank Flag Link Wed Jul 14, 2010
did you sell it on your own - meaning without a professional real estate broker? that would be YOUR first mistake if that's the case.

be that as it may, - consult your attorney but i'll over my 2 sense.

1. do you want to sell your home or keep a persons money?

important question. work with the buyer you have and work this out.

i highly doubt that your buyer WHO PUT DOWN 10% ON CONTRACT went into this in "bad faith". that's ridiculous. makes no sense. if he/she put down 1%, well then maybe they'd be playing games...for what reason i don't know.

it sounds like your buyer got pre qualified and was told by mortgage "professionals" that - "sure no problem, i can get you a mortgage".

even for someone who's closely connected to the business as you say your buyer is, most buyers will make that the end all be all of their due diligence in making sure they're pre approved. That's THE BUYERS MISTAKE.

your contract of sale almost certainly has a mortgage contingency in it. sounds like the buyer has tried in good faith, to get a mortgage and has been denied and has not exceeded the mortgage contingency extension you say you granted him.

your attorney will probably tell you that they can keep the money IN THEIR ESCROW ACCOUNT and you can litgiate this. but you won't be selling your property anytime soon because i'm sure there's things the buyers attorney can do to tie your property up. attorneys make a 1000 on a straight sale...they make a lot more when they litigate. :) good luck.
0 votes Thank Flag Link Wed Jul 14, 2010
Much will depend on your contract--and your best source of advice is your attorney--contact him/her and ask the question--then go from there.
0 votes Thank Flag Link Wed Jul 14, 2010
Hi Minnie,

If he had spoken to a lender and gotten pre-appoved and the loan officer lied, you may have a case against the lender, but it is your agent's responsibility to make sure that you are represented and that the buyer was qualified.

I would approach your agent first looking for damages. Then, your agent should figure out if the buyer did what they are supposed to do in the contract.

Best of luck!

Web Reference: http://fglick.com
0 votes Thank Flag Link Wed Jul 14, 2010
Minnie, please realize that some lenders are treating credit ratings that used to be good or fair as horrible ones today. So it's possible that you buyer might have had a 650-700 credit score, and that the lenders are looking for 750-800 today.

Another option, instead of rejecting the sale, is for you to offer to sell your property with seller financing, and for you to increase the amount for the required down-payment (to 15% or 20%). This way you'll sell your property, you'll not get tied up in court (requiring you to lose more money/time from this sale), and you'll close sooner.
0 votes Thank Flag Link Wed Jul 14, 2010
Hello Minnie,

One of the conditions that allows buyers to cancel their contract and get their deposit back is due to not being approved for mortgage. Checking the prospective buyer is one of the most important parts of the selling home puzzle.
If I can further assist you, feel free to call me at (516) 652-2658.

Thank you,

Uri Barkai
Licence Associate Broker
Web Reference: http://www.uribarkai.com
0 votes Thank Flag Link Wed Jul 14, 2010

Depends on what the legal language is in the original Agreement and subsequent extension. He has until the extension date you granted to notify you (usually in writing) that he is terminating and then you must return his deposit. Consult a local Realtor in your area as they will no more about the specifics on MA law.
0 votes Thank Flag Link Wed Jul 14, 2010
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