What happens to escrowed funds when a short sale falls through and the house goes into foreclosure?

Asked by Scbmbb, Ewing, NJ Wed Sep 16, 2009

My husband and I signed a contract on a short sale which was absent of any addendums in mid-August. Our agent told us that the addendums would be forthcoming and our attorney review period would begin after everything was signed by both parties. After a few weeks, our agent came back to us and said there was no telling when or if the addendums would arrive and we should proceed without them. We agreed and she sent an email to the listing agent, stating that the attorney review period could begin the next day with the inspection period to follow. We ordered our engineering inspection and asked to cancel our contract upon receiving these results. This was all done within the time frames allowed within our contract. However, the seller has refused to sign the cancellation which means we can't get our earnest deposit out of escrow. Since this is a short sale, what happens if the house doesn't get a contract and goes into foreclosure? Do we have any recourse other than small claims court?

Help the community by answering this question:

+ web reference
Web reference:


Joyce Begg, Agent, Pennington, NJ
Wed Dec 16, 2009
You need to have an attorney represent you this is how buyers get themselves in trouble. Attorney's are very necessary and can save a lot of heart ache in a real estate transaction.

Don't give up but contact an attorney.

Good luck,
Joyce Begg
20 years of experience working for you!
0 votes
James Miner…, , Westfield, NJ
Sun Sep 20, 2009
You are trying to cancel this Contract due to problems that were discovered during the home inspection process. The fact that this is a "short sale" is pretty much irrelevant because you would have the same problem even if this wasn't a short sale.

You should have had an attorney representing you in this transaction from the time you signed the Contract. FYI, Attorney Review timed out three days after both parties signed the Contract. Attorney Review does not stay "open" waiting for any Addendum and the real estate agent does not decide when Attorney Review begins.

The time-frame for doing inspections, and demanding repairs, runs from the date both parties signed the Contract. You didn't give any dates in your question, but if you waited "a few weeks" after signing, you likely lost your contractual right to cancel due to inspection issues.

You should consult with an attorney to determine your rights in this situation.
Web Reference:  http://www.buyerslawyer.com
0 votes
Carol McAlis…, Agent, Nashville, TN
Wed Sep 16, 2009
I agree with Paul and avoiding them from now on at all costs. They are time consuming and honestly, many fall thru. A vacant home can be a great deal also. It should be in your contract that earnest money will be returned as long as your contract had an inspection contingency and the times agreed upon for termination were followed.
0 votes
Yolanda Esco…, Agent, Westfield, NJ
Wed Sep 16, 2009
You need to consult your attorney as soon as possible. We are not allow to give legal advise.
Good luck!
0 votes
Paul Camuto, Agent, Princeton, NJ
Wed Sep 16, 2009
Obviously this is a question your attorney should be able to answer. I will assume the check has already been deposited. A stop payment or reversal might be in order.

Ultimately, I tell my clients to avoid the dream of getting a great deal on a short sales or foreclosure. You are at the mercy of the listing agent, the bank, the seller...the risk and exposure are not worth the minimial gain. You can find the same great deal on a vacant property with a motivated seller. Live and learn and move on is probably the best advice here. You can probably claim the loss on your income tax as a last resort.
0 votes
Jeremy S. Hi…, , Cherry Hill, NJ
Wed Sep 16, 2009
Your question will be best answered by an attorney who can advise you on the specifics on your contract. I advise you seek legal advise immediately.
0 votes
Search Advice
Ask our community a question

Email me when…

Learn more