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Our bank really screwed us up and now the sellers want to keep our earnest money even though they walked away. Seriously need some advice!
We agreed to purchase a home, received an inspection report, and underwriting approved loan amount. Thus at 17 days, we removed contingencies as asked per terms of our purchase agreement. Toward the end of the transaction process, our bank started to delay a couple days. When asked why, they said just a formality and almost ready. Then on the day we needed to close escrow, they informed us of a new appraisal that came in 10% below agreed purchase price.
Sellers immediately issued notice to perform, but we couldn't figure it out and execute in the 2.5 days we were given, and thus they issued cancellation. We shortly after found a way to get the funds together to bridge the gap but by then it was too late and the sellers already had another buyer lined up, willing to pay significantly more than we had agreed (the irony)!
That by itself is a tragedy, but now we learn that the sellers also want to keep our earnest money. It seems incredibly unfair because we had every intention to purchase the home, they walked away, and yet they get to keep all of our money? Technically we did remove contingencies, but its a lot of money, and since they're *choosing* to move on to greener pastures (which they seemed to already know about and be eager to get to when the opportunity arose), it just seems incredibly wrong!
Does anyone have any advice or opinions on a situation like this?
Just because the sellers WANT to keep your earnest money doesn't mean they are entitled to it. You do need to find out why a second appraisal was done when, I assume, your first appraisal was on the mark. If you acted in good faith in applying for your mortgage and the bank is now turning you down, I assume your contract would allow you to back out without losing the earnest money. That's the way it generally works in my neck of the woods.
I once had sellers who wanted to keep the earnest money when we decided to back out of a purchase after the title search discovered a $142,000 lien on the house. The sellers never disclosed the lien and they wanted us to rent until they cleared it up. We refused. I told our lawyer to relay to the other side that I would spend more than the earnest money to make the sellers' lives a living hell. The lien would become the least of their problems. We had the check in two days. If you'd done everything right, then stand firm, get the money back and look for another home.
Last edited by longislander2; 04-09-2013 at 08:40 AM..
Reason: correction
When a seller benefits from you not being able to close ( finding a buyer at a higher price ) they should give you back earnest money because they suffered no financial loss.
I don't know about legal, but it would be the ethical thing to do.
I've always said...... Never put down more than $1000 in earnest money. The headaches are not worth it. So if and when issues like this come up, you can simply walk away, or bring it to small claims court without a lawyer. Although they grumble and scream, I've never had a seller refuse my $1000. Why? They want to sell the darn house!
In Texas, the finance addendum is about the borrower, not about the property. That means, a buyer can remove the contingency because they were approved for the loan, however, if the PROPERTY doesn't get approved because of appraisal issues, survey issues, lien issues, etc... it's not the buyer's fault and they would retain their earnest money.
You need to get someone to explain your contract in little words so you understand it. An attorney is a good start if your agent isn't able to do that for you.
It would help to know where the property is located. I do not know what your contract says. Does the Seller have a way to cancel? Did you come up with additional money before your contract terminated? Does your attorney recommend recording your contract? Or is it better to just find a new place and get on with your life?
I'm sure you have discussed this with your agent/broker.
My experience is a letter from an attorney may get this quickly resolved.
In California, we use Title Companies and in my experience... barring a court order or agreement from all concerned parties... the money will not be released.
Appraisals are only an opinion of value at a given point in time.
Last December I was looking to refi and the lender said the loan to value was too high to qualify for the best rate... I went with my Credit Union 45 days later and that appraisal was 140k higher???
I say the home is worth 500k
First Lender says 380K
Second Lender says 520k
Go figure...
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