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My close friend is in a unique situation. He signed a home contract ( on his single name) with paying non refundable deposit of $5000, however inspection and mortgage contingency applied. The inspections went well. However, during this time, he had a discord with his wife and his wife refused to give the money saved in their joint account, and she used that money to pay off her HELOC from their primary residence. Due to lack of funds in the bank, his mortgage was denied. He asked for cancellation of the contract on the grounds of denial of mortgage and refund of the initial deposit.
Now the sellers are refusing to release the initial deposit blaming my friend that the buyer was not a first time home buyer and understood that he shouldn't have spent the money and it was a deliberate act of the buyer.
What are the options with the buyer in such a situation? Is it legal for the sellers to keep the money giving such a reasoning? I thought sellers dont have any legal basis of keeping the money. Both the agents have washed their hands off and ask their clients to go the legal route. What are the expected consequences??
Its a scary situation, your suggestions are appreciated.
My opinion only i don't blame the sellers. The sellers did nothing wrong, the inspections passed. Your friend is married he should have communicated better with his wife, or taken the funds out so he would have had the funds needed to close. And it was a deliberate act on his spouses part. Its a joint account and they are married so if one spouse sabotages a sale...how could the sellers be held responsible. As for the mortgage contingency , that also depended on your friend to do the right thing. He was approved he just had to fund, and would have if wife hadn't spent the money. It was deliberate act in the wife's part. I don't think going to court will help your friend. I think your friend needs to look at separate accounts.
I would not blame the sellers one bit for not giving back the EMD.
It sounds like perhaps the discord could have been foreseen. Why would he take the loan and make the purchase in only his name? Is this for an investment property? How much money did she spend and why did this stop the financing from going through?
From an ethical standpoint, the financing contingency isn’t meant for deliberate acts such as this. It’s supposed to be for buyers who weren’t already preapproved and couldn’t end up getting a loan, or for those who were given a faulty preapproval, or for the lender to not fund due to the condition of the home. That kind of stuff.
The entire purpose of an EMD is to give the seller something to fall back on in case the buyer changes his mind or puts the transaction in jeopardy. Seems to me the EMD is exactly what is needed to make the seller whole in this case.
Looks like the title company will have to file an interpleader and have the Court decide who gets the earnest money. I am not an attorney, but I think the seller may have grounds to refuse to release the EM if the buyer deliberately sabotaged the underwriting. If he was relying on this wife’s separate property (deposited money) to show for a down payment and she wasn’t on the PSA, the seller could claim fraud as grounds for keeping the EM. What a mess.
** EDIT ** If the seller or buyer agent is holding the EM in the broker trust account, the agent(s) are still very much still in this cluster. If a title company is holding the EM then the agents can back away.
Thanks for the responses. I shall convey these to my friend.
I believe the money is in the broker trust account and the seller's agent sent a release letter to my friend indicating that the funds may be released to the sellers.
My friend is having two thoughts whether he should get an attorney involved since it could go either way. Either he gets back the EMD minus the attorney fees or he ends up losing more money for the attorney fees.
The question is.. who decides if this was a deliberate act on part of buyer? Cant this happen in the normal circumstances? I can understand if his wife was also on the contract, but if his wife was not on the contract then if even his wife deliberately acted , can the buyer be held responsible if we take his wife as a separate individual from legal stand point.
As for the buyer, he was upfront at the time of the pre-approval that it was a joint account. Shouldn't the mortgage company before giving pre approval have got a written declaration that the funds from the joint account will be available for the transaction?
Your friend should at least consult an attorney on this. I don't believe there is an open and shut case here for the seller to keep the earnest money.
While that might be the right thing to happen, that doesn't necessarily mean it will happen.
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