Our loan got denied because the HOA delinquecny is over 15%. Can we get our deposit back without loan contingency in our offer? Condo is located CA.

Asked by Jj, Ontario, CA Sun Oct 23, 2011

BofA denied our loan because of HOA delinquency is higher than 15%. The loan officer said we are approved, but not the condo project so we should be able to get the deposit back even without the loan contingency. My agent recommended to try with other loan agent to get the loan and of course the loan is denied because of the HOA delinquency.

Now the seller wants to keep the earnest $5000 deposit. (condo price is $135K). Seller is saying because we don't have loan contingency in the offer and that we tried second time, but the seller agreed for us to try second time. How can we get our deposit back we did all our part in good faith and the escrow failed since the condo project does not qualify to get financing.


Don Tepper, Agent, Burke, VA
Fri Nov 4, 2011
No loan contingency? Huh?

Bad move.

I can see at least two options:

First, talk to your agent's broker. The broker may be able to apply some pressure and get the seller to release the deposit. Or . . .

Second, tell the seller the cold, hard truth. "Look, Mr. Seller, we wanted to buy your condo. We applied for a loan, as we'd agreed to, and we applied a second time. But, Mr. Seller, here's the bad news for you. Nobody--and I mean nobody--is going to be able to get financing on your property. You've got a major problem with your HOA delinquency rate. So don't think that you can just keep our money, terminate this contract, and then put your property back on the market and expect it to sell. You can't sell it. Not tomorrow. Not next week. Not next month. Maybe not next year. And you know what, Mr. Seller. I'm wondering whether you knew all along that your unit was unsellable. Tell you what. Make you a deal. You give me $4,500 back. Keep $500 for your time, and we'll call it even. Otherwise, I'll get my lawyer involved. And that'll cost you far more than my earnest money deposit."

But, next time, don't forget that financing contingency. And while I don't know California practices, if you get x number of days to review condo documents, be sure that you do to spot this sort of problem in the future.

Hope that helps.
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Garrigus Real…, Agent, Redlands, CA
Fri Nov 4, 2011
I hope you have since received your deposit. If not you may want to consult a real estate attorney.
Web Reference:  http://RealEstateABC.info
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, ,
Tue Oct 25, 2011
The seller can not keep your deposit. In California you have 3 days to back out of any offer once new information is disclosed.

Slap a lein on their property, they will not be able to sell until you release it.
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Diana Margala, Agent, Rancho Cucamonga, CA
Sun Oct 23, 2011
Hi Jj:
I'm not sure why your agent would have removed your contingencies without knowing if the property would qualify. This is becoming a bigger and bigger problem with many of the Condo's. Did you remove your contingencies in writing, if not than they are still in effect. There are multible contingencies to help to protect the buyer as stated by Steve. If you removed your contingency in writing, then talking to a lawyer would be the next step. You also might have your agent check to see if the MLS states FHA or any type of financing or does it say cash only, because if it indicates that the home qualifies for a loan than that might be another way to look at it, but that would be a question for the lawyer. Also did you check the box for liquidated damages, because if you did not than that makes a difference on how they determine what would be available for damage.
This would be handled in small claims court if you need to go to court and I think that you should at the very least talk to a lawyer.

If your agent isn't helping you, get their broker involved.

Good Luck
Diana Margala 909-560-0145
Web Reference:  http://www.dianam.com
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Steven Ornel…, Agent, Fremont, CA
Sun Oct 23, 2011

Wow, I'm simply floored your Agent would advise removal of the loan contingency without fully vetting the HOA.

Assuming you used the most recent CAR Residential Purchase Agreement (4/10), here are a few points to consider:

1) The three primary contingencies of the CAR Residential Purchase Agreement [Loan/Appraisal/Inspection(s)] require "active" removal in writing; as opposed to a "passive" removal where a date simply passes and automatically removes the contingency.

If the Buyer is in default, then Seller can cancel the contract and claim the Buyer’s deposit per Para 16 -Liquidated Damages; HOWEVER, ALL buyer contingencies must be removed in order to do so.

2) Para 14C(1) of the RPA states, "If, within time specified in this Agreement, Buyer does not, in writing, Deliver to Seller a removal of the applicable contingency or cancellation of this Agreement then Seller, after first Delivering to Buyer a Notice to Buyer to Perform (C.A.R. Form NBP) may cancel this Agreement. In such event, Seller shall authorize return of Buyer's deposit."

3) Para 14F of the RPA states, "If Buyer or Seller gives written notice of cancellation ….A Buyer or Seller may be subject to a civil penalty of up to $1,000 for refusal to sign such instructions if no good faith dispute exists as to who is entitled to the deposited funds (Civil Code §1057.3)." The Seller must release the deposit within 30 days per Civil Code §1057.3 http://law.onecle.com/california/civil/1057.3.html

Now, if you have removed ALL of your contingencies in writing.... well, your next step might be talking with a RE lawyer and/or the Agent's broker because removing all contingencies before fully vetting the HOA was a questionable move in my opinion.

Again, assuming you used the most recent CAR RPA you normally have a duty to use Mediation and Arbitration as a means of resolution (Para 26 “Dispute Resolution”); however, at the same time, due to the deposit amount, you can go directly to small claims court via Para 26C1.

Good Luck!


- Steve
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Dan Tabit, Agent, Issaquah, WA
Sun Oct 23, 2011
I'm a bit confused, do you have a financing contingency or not? If you do and the loan is denied for any reason beyond your control I would think you are entitled to your earnest money back.
If you do not have a financing contingency, why not? If this was your choice, under what grounds would you be entitled to have it returned? Earnest money is controlled under very specific conditions dictated in your contract. If your contract did not anticipate the issue you are probably not entitled to get it back.
In most cases where there is a dispute, you will need to have your issues resolved through mediation. This will be the last word on the matter. Read over your contract and discuss the choices made with your agent.
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Laura Coffey, Agent, Santa Clarita, CA
Sun Oct 23, 2011
If your loan was denied you should have every right to get your money back if you have not removed that contingency yet. In the future you Realtor should look into that before you even start the process. Most good Realtors would.
If you are FHA they will have a hard time keeping it. Make your Realtor fight to get your money back.
Web Reference:  http://www.laura4homes.com
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