Svseller, Home Seller in San Francisco, CA

We have a question about our rights to the deposit when buyers claim an inability to get financing at the last minute

Asked by Svseller, San Francisco, CA Tue Jan 19, 2010

We have been in contract in San Francisco and our buyers have removed all their contingencies except financing. They seemed to have plenty of assets to get the loan, throughout the process we were informed of their finances, but they recently came back to us with what seems like a bogus reason for not being able to get financing.

We are trying to figure out what our rights are to the deposit money if this was the only remaining contingency and we believe they are capable of getting a loan but are using this as a reason to try and get out of the deal

Help the community by answering this question:


If the buyer to backing away based upon the financing contingency require something in writing from their bank indicating they are unable to finace the buyers per the Sale Price & Down Payment referenced in the Contract. I concur that the firm holding the EMD should not release Buyers EMD until Seller Signs off on the release of the funds.
1 vote Thank Flag Link Fri Jan 29, 2010
Certainly, you have a right to verify that the buyers are unable to satisfy their financing contingency.

Your contract defines what the buyer's obligations are; if, for example, you have both agreed that the sale was contingent on their getting a conventional loan with 20% down, and they can't get that loan, that's the end of the story - whether or not they could pay cash or rustle up other financing.

Price and terms. Terms are an essential part of the sales contract. If they can't buy on the terms you agreed upon, I think you may not have a claim for the EM.

What does your agent think?
1 vote Thank Flag Link Wed Jan 20, 2010
Dear SVseller,

The contingency for financing is most important for the closing of your property. It is in place on your sales agreement as a safeguard for the buyer. If the buyer cannot get a mortgage committment, then they cannot be forced to purchase your home. They would however need to produce a mortgage committment denial letter to you/or your agent/lawyer. I practice real estate in NJ, so your laws may be different should also have had a mortgage committment date on your sales agreement- the date of which the mortgage banker promised the funds (it is usually 30 days +/- from your closing date). If there was a problem with financing, you would be informed in writing. If your buyer is denied for a mortgage (in writing) then you cannot hold their escrow monies. If they don't have a written denial letter, then you may have probable cause. In any case, might be best to seek legal advice.

Best wishes,
Debbie Bathen
RE/MAX Atlantic
Northfield, NJ 08225
Web Reference:
1 vote Thank Flag Link Tue Jan 19, 2010
This is the reason we recommend you have a Real Estate Attorney. The banks have become more strict in the last 2 years and it is possible that the bank they are dealing with is strict. However, it could also be a way out for the buyer. The answer is for your attorney! It is his job to let you know your options at this time. The people may have done something as simple as purchasing a car prior to making an offer on your house. This may over-extend them and would hinder them from getting the mortgage. Talk to your attorney.
0 votes Thank Flag Link Fri Jan 29, 2010
Without seeing the entire contract it is difficult to give you a general answer however, if the financing is still a contingency then it is just that. Even though the buyers have plenty of assets their credit score, outstanding IRS lien or something else may be preventing them from obtaining a loan.

Carefully check the wording in your contract regarding obtaining financing. Each state has different verbage. You may want to consult your attorney to see if you have any recourse.

Good luck with your closing.

Carol Moson, CRS, ABR, e-Pro, SRS, SFR, EAH, GREEN, REALTOR®
"The Moson Group"
RE/MAX Greater Atlanta
770-973-9700 ext 289
0 votes Thank Flag Link Fri Jan 29, 2010

Did you use an RPA-11?
has your contingency period ended?
did they release their financing contingency?
where is your agent?

Bottom line is; even if you "deserve" the deposit - California courts side with the Buyers most of the times.
It'll probably take more time and energy to collect the deposit than it's worth.

What are we talking about $25 - $30K. Do you have any idea how quickly an attorney can suck that out of your pockets?

Move on. Get a buyer that wants and loves your place because often times if you "make" people do things they are more inclined to be dis-satisfied down the road. You as the Seller are on the hook for anything the Buyer is unhappy with later on .

Lastly, a smokin agent would have already positioned the buyers agent to release the contingency or having them go non-refundable when the financing started to get shaky.

Hope you have a smokin agent!

Good luck to you!


Rebekah Owen, MBA
Managing Broker
650-492-5958 214-257-0193
CA#00994952. TX#0555675

Skype Me at:Rebekah_o
0 votes Thank Flag Link Fri Jan 29, 2010
This will depend on the wording of your contract. It the only contingency was the financing and they can prove the loan was denied, you will not have rights to the earnest money deposit. You can ask for documentation that the lender has denied the loan to the buyer , (with the date).
There are many reasons the lender may not approve a loan.
The seller and buyer both need authorize the release of buyer's earnest money from the escrow company. Your agent will know how to proceed.

It may be better to cancel the contract and get back into the game so you can get a new buyer and a new contract. Time is money.
Lois Harper Coldwell Banker Wardley, Las Vegas, NV - 702-612-8842
Web Reference:
0 votes Thank Flag Link Thu Jan 28, 2010
Lender would need issue a statement buyer was declined for a loan.

YES this happens MORE TIMES THAN you can imagine up to last second lenders can pull the plug !

All is governed by terms and conditions of executed sales agreement have your listing agent explain the contract . Title company would require a release of earnest money from all parties including brokers.

National Featured Realtor and Consultant, Texas Mortgage Loan Officer, Credit Repair Lecturer
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0 votes Thank Flag Link Thu Jan 28, 2010
The purchase agreement is the roadmap for your answer. Most indicate the disposition of the deposit, which is made in good faith to be a buyer's indication that he/she wants to move forward. If the contract indicates that the buyer must be approved for a loan in order to close the deal and purchase your property and that was denied, get a copy of the denial from the lender. Then typically the deposit is returned to the buyer.
0 votes Thank Flag Link Thu Jan 28, 2010
Ooh, yes, very important point, Jed!

The escrow company is so not going to release the earnest money to them without written permission of the buyer. Simply is not going to happen.
0 votes Thank Flag Link Wed Jan 20, 2010
.Earnest money deposits have to be released bilaterally. So you can ask for any information you want and then decide what is correct. At this juncture in this process Realtors can’t advise you on what to do. You have to get advice from an attorney because this is now between you the buyer, the escrow company and requires legal interpretation of the contract.
I can say that the lenders are making up rules as they go along and good for the selling agent in protecting the client’s earnest money by not removing the contingency. Sellers don’t seem to understand the problems we are seeing in the transactions. Mortgage brokers can tell stories of demands and weird rulings from underwrites that can bollocks up a deal right at the end.
One work around is to have the buyer double app. Have them fill out loan applications with a lender of your choosing. Be up front with the lenders, but this is one way to close the deal on time.
0 votes Thank Flag Link Wed Jan 20, 2010
Jed Lane, Real Estate Pro in San Francisco, CA
I'm sorry you have to deal with this mess. Have your agent get his broker involved to find out what's real and what's not. Contracts are written to protect both parties.

If your agent and his/her broker cannot get a letter from the buyers lender, then prior to getting an attorney, you need to ask yourself if you want to spend time and money chasing this further, or is it time to move forward.

I know it's the principal, that you sold your home in good faith and from your letter, I can feel your frustration, but be careful what you ask for, the attorney fees can get very expensive.

Good luck,

Cashin Company
0 votes Thank Flag Link Wed Jan 20, 2010
In the contract there are contractual obligations of both the buyer and the seller. Since I do not know the details of your contract with this buyer I can only refer in general these obligations and not the specifics of yours.
It sounds like the buyer had a loan and appraisal contingency in the contract. If these contengencies were removed, as referenced already, talking with a Real Estate Attorney would be a good idea to see what the best path would be for you.
If these contingencies were not removed, then contractualy, the buyers are within their rights to back out of the contract. These contingencies are in place to ensure if there is a problem with the appraisal or loan that that there are options of either further negotiating based on the appraised value or allowing the buyer to release themselves fromt he contract if they are not able to get financing.
If you feel that the buyers are not being truthful with you, first I would talk with the agent who is representing you in the sale of your home to see if they might be able to get some insight from the agent representing the buyers. Secondly I would make sure to know the details of the contract. If the loan contingency has not been removed, it is typically harder to prove your case. If contingencies were removed, you may have a contractual ability to recoup the earnest deposit money.
It is highly recommended you talk with your Realtor and a Real Estate Attorney to discuss the details of your contract so you fully understand the contractual obligations the buyers have so you better know how to proceed.
Sorry to hear that this has been a frustrating process and I hope that the next buyers you work with are better equipped to close.

I hope this helps!

Lisa Cartolano
Alain Pinel Realtors
0 votes Thank Flag Link Wed Jan 20, 2010
This is a case that you would be best advised to consult with a real estate attorney. My interpretation of the contract is that once all contingencies have been removed the seller would have the right to get the good faith deposit according to the California Association of Realtors purchase agreement unless there is a stipulation in the contract that changes the original default. The tough part is that the buyer and seller both need to agree to give the deposit to the seller and end the agreement. The buyer may choose not to sign this release of funds. Then the seller will need to pursue the good faith deposit by arbitration, mediation or perhaps small claims court. Meanwhile this may put a cloud on the title and the seller may be unable to sell the home. The seller will then need to decide whether it is worthwhile to pursue the good faith deposit and possibly delay the sale of their home.

This is my opinion,

Tony Lewis
RE/MAX of Valencia
Web Reference:
0 votes Thank Flag Link Wed Jan 20, 2010
In general, a sale agreement includes a financing contingency that allows a Buyer to receive earnest money back, should the financing fail. If the Buyers are stating that this has happened, then you should be able to request written verification from their Lender that this has, in fact, happened and perhaps some indication of why, although privacy must be maintained. If the Buyer still really wants the property, sometimes it is worth it to allow them time to seek financing from another Lender as they are not all equal. Sorry to hear about the loss of your sale. May you find another Buyer soon. All the best.

Sandi Siron, Principal Broker
ERA Universal Realty, 985 Hermiston, OR
Office 541 567-8303 Mobile 541 571-1221
0 votes Thank Flag Link Tue Jan 19, 2010
Dear SVseller,

Yes, you are entitled to a refusal letter from your buyer's mortgage company. The letter would be sent to your listing agent (ask him/her for a copy). The letter from the buyer's mortgage company should state why the buyer has been denied a mortgage. It is a form letter (in most cases) with check boxes, but it is very apparent why the buyer has been denied.

If you don't get this, then as I suggested legal councel.

Good luck, SF is my favorite city ever ...I grew up in SoCal

Debbie Bathen
RE/MAX Atlantic
Northfield, NJ
Web Reference:
0 votes Thank Flag Link Tue Jan 19, 2010
THank you for all the responses. So I guess now the question I have is do we have an absolute right to see this denial letter from the lender they were working with, and should this denial letter state why they were denied or can it just say they were denied? If they cannot produce this, then it sounds like we might have rights to their deposit?
0 votes Thank Flag Link Tue Jan 19, 2010
Side note..I just noticed your post about the "overseas monies". If they do not have a paper trail - irs returns in the USA, tax returns nor bank other words, non traceable income, then they can easily get denied a mortgage. Mortgage lenders here want to see at least 3 years of traceable income.

Debbie Bathen
RE/MAX Atlantic
Northfield, NJ
Web Reference:
0 votes Thank Flag Link Tue Jan 19, 2010
What is your agent/broker saying about this?

Seems to me that you have the right to ask for a copy of the lender's refusal to give financing.

The lender may have countered the buyers on the financing they may offer the buyers, or they may have denied them credit all together. The buyers contract obviously had a financing provision in it if they have a contingency. What are the terms within the contract? These are maximums the buyers will accept for financing, so the letter from the lender with the denial (or offer) of credit would have to be above the contract limits. There are lots of issues getting financing right now, so anything could have happened. Be sure to get it in writing and work with your agent and their broker to get the best advise.
0 votes Thank Flag Link Tue Jan 19, 2010
The reason that was given was that they had some money overseas, and transferred the money from overseas accounts (Germany & China) into the US and the lender didn't like this. Their credit scores and incomes and assets and debt to income are all fine. Even without the overseas money, they would have had plenty of money for their deposit. Neither Germany nor China are on the list of the OFAC, which is the best thing I can understand the lender was saying (I'm getting third-party accounts)
0 votes Thank Flag Link Tue Jan 19, 2010
If the contract is contingent on financing and the buyers are denied finacing, then they have met the terms of the contract and you are probably not entitled to the earnest money. All they have to do is have a denial letter from the lender.

You would have to prove that they are trying to back out for some other reason in order to be entitled to the earnest money.
0 votes Thank Flag Link Tue Jan 19, 2010
What was the reason, and did they get a denial from a lender? Assets alone to not get you a loan any more. You need was I call the CIA, Credit, income and assets. There are plenty of people who have loads of money, but have low credit scores. Others do not show enough income on tax returns.
0 votes Thank Flag Link Tue Jan 19, 2010
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