Will I lose escrow money if the house is not closed on time? What recourses do I have?

Asked by sp, Kirkland, WA Fri Dec 7, 2012

I am currently working on closing a home. The lender is taking longer than expected and what he has predicted. We have got 2 extensions of week each. The seller is threatening that if the property is not closed within the current extension, he will not give another extension. I shouldn't have issues getting a loan. The lender has appeared to done the paperwork correctly leading to many inquiries, which is the cause of the delay. He has committed to close it within the current extension. I am concerned and worried if we miss this, I will lose the house and the escrow money. How i should prepare the worst case scenario and what actions I can take to mitigate damage.

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9
Doug Tingvall, , Bellevue, WA
Sat Dec 8, 2012
Of course, the answer depends on the specific facts of your situation and the contract itself. Since you are writing from Kirkland, WA, I’m going to assume that your contract is written on standard NWMLS forms, including the financing addendum (Form 22A). Under Form 22A, if you are unable to obtain financing by the closing date and you have not waived the financing contingency, then you will be entitled to a refund of your earnest money legally, provided that you made timely application for financing, had sufficient funds to close and made a good faith effort to obtain financing. If you previously waived the financing contingency, then the delay by the lender is not a legal excuse, you will be in default and the sellers will be entitled to the earnest money. And, so long as the sellers did not cause or contribute to the delay in financing, the seller is not required to extend the closing date – not even by one day and even if the seller granted previous extensions – unless the contract says so. Wallace Real Estate Inv., Inc. v. Groves, 124 Wn.2d 881, 881 P.2d 1010 (1994).
However, as Ardell points out, the closing agent or selling brokerage firm holding your earnest money cannot actually disburse the earnest money to either party without the written agreement of all parties. In other words, you may be entitled to the earnest money legally, but as a practical matter, you may not be able to recover the earnest money without a lawsuit. This is because a judge, rather than the closing agent or real estate broker, must decide who is entitled to the earnest money in the event of an actual dispute. Edmonds v. John L. Scott Real Estate, Inc., 87 Wn.App. 834, 942 P.2d 1072 (1997), review denied, 134 Wn.2d 1027, 958 P.2d 313 (1998).
Under NWMLS forms, if the closing agent receives conflicting demands for the earnest money (i.e., sellers say “give the earnest money to me” and you say “give it to me”), the closing agent is supposed to file an interpleader action and deposit the earnest money into court, where a judge will decide which party gets the earnest money. However, an interpleader action is a lawsuit, which has several negative consequences: lawsuits are expensive, time-consuming, stressful, inconvenient and risky. Most people have a false impression from TV shows that in a couple weeks both parties will go tell the judge their side of the story and the judge will dispense instant justice! That’s not how it works in real life. Rather, both parties will have to hire attorneys (because most people don’t know or understand the procedural rules followed in court), the parties have to file and serve formal pleadings (answers, cross-claims, replies and third-party complaints), the parties will serve and respond to interrogatories and requests for production of documents, the parties will take depositions of key witnesses, the case will be transferred to mandatory arbitration (if the amount of the earnest money is $50,000 or less), the parties will submit prehearing statements of proof, and then the parties will attend an arbitration hearing. Get the picture? It’s much more involved than either party probably ever imagined!
It’s true that the prevailing party will be entitled to recover their attorney’s fees and court costs. However, again, what actually happens is not always what should happen. Arbitrators are required to award attorney’s fees to the prevailing party in a contract dispute, but the arbitrator has discretion as to the amount to award. Often, the arbitrator concludes that the amount in controversy doesn’t justify the amount incurred by the prevailing party, so the arbitrator awards less than the full amount incurred as “reasonable” attorney’s fees. In short, unless the earnest money deposit is substantial, the attorney’s fees incurred by each party typically exceeds the amount in controversy in a residential transaction!
There is a simple and inexpensive solution. By agreement, the parties could submit the dispute to binding private arbitration. State law (RCW 7.04A) authorized private arbitration, where the dispute would not be governed by burdensome procedural rules and could be resolved quickly and inexpensively. For more information, go to the “Arbitration” page on my web site, http://www.RE-LAW.com.
Web Reference:  http://www.RE-LAW.com
1 vote
Jirius Isaac, Agent, Kenmore, WA
Sat Dec 8, 2012
If it looks like it will not get done on time, go speak to a real estate attorney. I can recommend a couple of them to you that do this full time & they can discuss options with you. Most of what the others have said is true. Do not stress on it too much.

Good luck to you in any case,
Jirius Isaac
Isaac Real Estate Team
Champions Real Estate Services
TriStar Finance #MLO-107799
Office: 425-483-6849 Cell: 206-841-9976
Winner of Seattle Magazines 5 Star
Real Estate Agent Best in Client Satisfaction Award
Mortgage Loan Originator Best in Client Satisfaction
0 votes
Tony Warfield, Agent, Manhattan Beach, CA
Sat Dec 8, 2012
See if your loan officer can escalate the loan approval to a higher level. Your agent should try to reason with the seller's agent, if you are just days away from closing. Holidays do tend to slow down things in real estate and extensions should factor it in. What is the seller's ultimate goal? To sell the home and move on? Or do they really want to start the process all over again with a new buyer?

Look at your contract. Some contracts will have a binding arbitration agreement for these kinds of disputes if escrow gets cancelled and if signed, it could avoid the costly expense of attorneys.

Good luck.
0 votes
Kary Krismer, Agent, Renton, WA
Sat Dec 8, 2012
This is difficult/impossible to answer without seeing your contract, and in any case, would require that you hire an attorney to review your particular situation.

For example, the contracts we draw almost always have a clause in them allowing an automatic 5 day extension if closing is delayed for reasons beyond your control. We typically explain that as being a snowstorm or earthquake, but it could also apply to situations where the lenders computers crash the day they are printing docs. Conceivably it might be extended to your situation, although that is more doubtful. But that's our language, and you almost certainly don't have our precise language (although you could have similar language).

Also, you probably had financing contingency addendum, and that contingency might still exist. On our standard forms it doesn't automatically disappear after 30 days.

On the other hand, once you get to the last day, whatever it is, there's nothing that requires the seller to give you more time. Usually that is in their interest, but they don't have to do anything. That does not necessarily mean you'd lose your earnest money, but it would keep you from getting the property.

Again I would suggest you really need an attorney to provide you the answers to your questions.
0 votes
Karen Mcknig…, Agent, Kirkland, WA
Fri Dec 7, 2012
HI sp,

Your real estate broker should be in continual contact with the lender to make sure the lender gets the documents to escrow on time, so you can close on time. If necessary, your broker can escalate this with the lender's supervisors, as high as necessary to get the loan approved on time.

I wonder if there are issues I am not aware of. There are always details that make each situation unique. The lender knew the closing time period in the beginning and hopefully, you were pre-approved.

Your real estate broker can also be communicating in depth with the seller's broker, so you can work through the challenges and close on the house, which is to everyone's best interest. From your note, it doesn't appear you are at fault, so your broker can appeal to the seller and the seller's broker's sense of fairness.

It may not be in the seller's best interest to put the house back on the market because it is a hassle. You could, at some point, agree to pay a per diem to mitigate the seller's lost time and lost oportunity.

Today's underwriting guidelines are very complicated, so it is mandatory that you use a very experienced lender. If you have 20 days until closing and this lender is not doing their job, you can have the entire packet moved to another lender. There are lenders, today, who can close a transaction in two weeks.

Good Luck,
Karen
Web Reference:  http://www.karenmcknight.com
0 votes
Steve Tarabo…, , Kent, WA
Fri Dec 7, 2012
My last transaction was very similar, took two extensions and almost a third. You say the lender is committed to close with the current extension. The loan docs need to get to escrow in order for it to close. I would have your agent contact escrow find out thier timeline to close after receipt of docs then contact the lender again to find out the date the docs will be delivered to escrow. With those two time lines you will know the amount of days needed.Should this work within your time line great. If not all this information needs to be in writing as well as the reasons for the first two extensions and all the reasons why you will love living in the sellers home.Lots of detail works best, and submitted with the last extension to the seller .On this last extension I would add 3 extra days to be safe( sure glad I did, I needed them). You or your agent should be ready to offer the seller something of value for this last extension, if the seller is reluctant.

Additional $250-$500, or something the seller is most interested in. There may have been some thing in the agrred sale that coud be of value to the seller that could be taken off the table with an addendum to sweeten the deal for the seller.

Should the seller remain very adamant on not extending, the seller needs to be reminded that they will need to go thru the entire process all over again with another buyer, closing sometime in late January 2013.
My guess is the seller is reading all the news about prices increasing and thinks he has sold to low. You agent could do an updated market evaluation on the current value of the home. Just because prices have gone up overall doesn't mean his price has gone up. There are four main determinants of saleability, market value, Price, Condition, Location and Marketing.
Bottom line is your Broker nad your Broker's Branch Manager would have the best answer as they have access to all the details of your transaction. Wishing you the best, Steve
0 votes
Ardell Della…, Agent, Kirkland, WA
Fri Dec 7, 2012
It depends where you are when the next deadline hits. If the loan documents are at escrow and you have signed your documents by closing day...but you need that one extra day for it to record, the seller will likely be OK with it. If you have no loan documents at escrow by the extension date then something is terribly wrong and the seller should not grant an extension until you actually know what day you can close.

Late by a day or two is not abnormal. Two extensions of a week each is not the norm. Is your loan out of underwriting, approved, conditions met and loan documents being typed? Or are you still "in underwriting" with no approval? It depends where you are in the process whether or not this will appear to be a lost cause from the seller's standpoint.

Your Earnest Money will not disappear without your signature, by the way. It won't come back to you without the seller's signature, but it won't go to them either without your signature. Hopefully that info relieves your stress a bit. You don't "lose" Earnest Money in this type of situation without both buyer and seller signing an instruction as to where escrow is to send the Earnest Money.
0 votes
Phil Leng, Agent, Kirkland, WA
Fri Dec 7, 2012
If your agent isn't performing up to your standards (they should be in every aspect of your transaction) the first thing is to contact his Managing Broker - the person in the office he answers to. If the lender isn't performing, do the same. This is your livelyhood on the line - chase it!

To learn legal consequences requires a licensed lawyer to respond in a qualified way. There's so many different aspects involved.

If your people perform you will likely be okay. Just don't be bashful about using the chain of command.

Phil Leng
Keller Williams Real Estate
Eastside Market Center
206-409-6600
Web Reference:  http://philipleng.com
0 votes
Dave Skow, Mortgage Broker Or Lender, Seattle, WA
Fri Dec 7, 2012
best thing to do ( in my opinion ) is to communicate with EVERYONE .....( seller / agents / escrow / title / lender ) regarding the issue and problem

PLUS :

Get a concrete timeline from lender and possibly even have lender/ loan officer or manager communicate directly to listing agent / seller ( or whoever wants to talk )
0 votes
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