Home Selling in 90094>Question Details

Landsend, Home Seller in 90094

escrow deposit

Asked by Landsend, 90094 Tue Aug 4, 2009

i was the seller in a real estate transaction (california) that failed to close. after 8 long weeks in escrow the buyer was denied financing, resulting in buyer failure and escrow was forced to cancel.

the buyer submitted a $5,000 deposit to initiate the escrow. am i entitled for a portion of that deposit? i am in california, and signed a residential purchase agreement and both the seller (me) and the buyer initialed in paragraph 16 that states
if the buyer fails to complete this purchase because of buyer's default, seller shall retain, as liquidated damages, the deposit actually paid...
also, contingencies were not removed by the buyer.

i refused to release the funds to the buyer, and it looks like we might go to arbitration. should i even bother? or should i just release the deposit?

thank you

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Answers

8
Eric H. Wong ’s answer
If you have not been financially harmed, I would release the deposit and move on and find a new buyer. It sounds like contingencies were not officially removed, and you never served the buyer with the 24-hours to preform notice as stipulated in the CAR contract to purchase.
Even if the contingencies were removed and the buyer breached the contract, you would still have to prove that you were damaged to retain all or part of the deposit.
Talk to your agent, and, if need be, a Real Estate Attorney, but in the long run, it may just be more productive to put this behind you and move forward.
2 votes Thank Flag Link Tue Aug 4, 2009
I would release the funds and start over. As others have stated, you can not sell your home until this is settled and I think the chances of winning are slim. There is no guarantee that the buyer would qualify for the loan when you started, which is why there was probably a finance contingency and if this was not removed, it should state that the buyer is entitled to a full refund if they don't qualify.

A default should also be defined in the contract. If the buyer used the bank that gave you a pre-approval and made an honest effort to secure a loan, then they probably have not defaulted.

It happens from time to time, and a little more now than it did 5 years ago.
0 votes Thank Flag Link Sat Jun 4, 2011
If there is a pending litigation/arbitration you will may not be able to sell your home. Check with a real estate attorney. Is it really worth it to prolong selling your home for $5,000? Best to move on and look for another buyer.
0 votes Thank Flag Link Sat Jun 4, 2011
Hi Landsend,

I'm sorry to hear that the escrow did not work out. However, based off of you telling me that the contingencies have not been removed I do not see that you will be entitled to keep a portion of the deposit. I would recommend that you release the deposit and move on to try and locate a new buyer for your home.

Here is something to think about. Liquidated Damages is what you mentioned in your question and if the buyer had removed their contingencies including loan contingency 17 days after you excepted the offer you could keep up to 3% of the buyers initial deposit under liquidated damages. For example you have a sales price of $300,000.00 and the buyer puts down $9,000.00 with their offer and the buyer then removes their contingencies including loan, then breaches the contract then you would be entitled to keep the $9,000.00 under liquidated damages. So in the future here are some recommendations.

1. Make sure the buyers will remove all contingencies 17 days after exceptence of offer. This is the standard time frame for the buyers inspection period. By removing the contingencies at 17 days locks in the buyers and gives you the seller more control of the transaction. NOTE: Make sure buyer initials liquidated damages.

2. Try to get the buyers to agree to remove their loan contingency at 17 days after acceptence rather than at loan funding. This will give you the seller more control of the transaction as well.

3. If the buyer does not remove their contingencies on time as agreed to in writing, make sure that your agent sends them a Notice to Perform. This will give the buyer(s) a final time period to remove their contingencies and move forward with the escrow, or cancel the agreement and get their deposit back. This will allow you (the seller) to either move forward with the escrow or look for another buyer after 17 days rather than going 8 weeks into a transaction and seeing the deal fall apart.

If I can be of futher help please let me know. Best of luck!

Matt
0 votes Thank Flag Link Tue Aug 4, 2009
Landsend,

Discuss this with your agent before moving forward. First of all what was stated in the initial contract? Did it give the buyer 17 days for the loan, or the was the loan contingency box checked off? That makes a big difference. Second of all if the 17 days box was check off the contingencies should of been removed in writing by the buyer, but even if they weren't removed you may have a chance.
0 votes Thank Flag Link Tue Aug 4, 2009
If the loan contingency was not removed. Then no, you can't retain the escrow deposit or any portion thereof.

Release the deposit & just move on. Next time around talk to your Listing Realtor about what a "standard" amount of time is for an escrow period.

Nothing should take 8wks to close if you are a Normal Equity Seller. Even a VA loan will close in under that time, and those usually take the longest.

Let me know if you need any more good advice.

Again, Let it Go, get them their deposit back right way, let them move on & you move on, next time will be a better result for you.
0 votes Thank Flag Link Tue Aug 4, 2009
I am sorry your sale did not go through, but it sounds like you should release the funds. If the buyer did not remove the contingencies and is still in the contingency period, then you most likely will not get to keep the funds. A default would occur if there was no loan contingency in the contract and the buyer didn't get funding. I hope that helps.
0 votes Thank Flag Link Tue Aug 4, 2009
Hi Landsend,
I am sorry you were unable to complete the sale. The answer to this question depends on if the buyer had removed all contingencies including the loan contingency. If all contingencies were removed, in my opinion, you have a legitimate claim to the deposit.
Good luck,
Walter
0 votes Thank Flag Link Tue Aug 4, 2009
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