We had a buyer put an offer on our house. Settlement date was set. She changed it several times. She ended up not being able to get the loan...

Question

We had a buyer put an offer on our house. Settlement date was set. She changed it several times. She ended up not being able to get the loan needed. She defaulted on the sales agreement. Our realtor the earnest deposit would be ours since it wasn't our fault. It has been over a year and that money is in the escrow

Account of the real estate company. They claim that the buyer has to

Sign it over and she has not. Should we take her to

Small claims court? Why does the money have to be signed over if it was already deposited into the real estate company's account? Are they trying to

Keep it?

Answer

Hi, and thank you for your question.

If the Agreement of Sale that you and the prospective buyer signed was the standard form 'Agreement of Sale', then the printed part of will contain the usual contingency clauses, one of which was that the sale was contingent on the buyer securing a mortgage loan for the balance of the purchase price. The Agreement of Sale would also contain a provision that if the buyer were unable to secure a loan for the balance of the purchase price and the sale did not occur, the buyer would be entitled to the return of his/her good faith deposit (earnest money). If you and the prospective buyer signed a standard form Agreement of Sale which is normally used in the sale of residential real property, then if you go down about one-third on the first page, you will find in the printed form that the buyer "shall apply for a loan for the balance of the purchase price by _________ " (and indicate the date by which the buyer would have to have an application submitted to a bank or other lending institution) and it would also have a space in which is typed the maximum rate of interest which the buyer has to accept for a mortgage loan. It is done this way so that the buyer is not forced to accept a loan at a ridiculously high rate of interest simply to satisfy their obligation under the terms of the Agreement of Sale.

It is extremely rare, for the Agreement of Sale to provide that the buyer will lose his/her good faith deposit if they applied for a mortgage loan, but were unable to secure such loan for the balance of the purchase price. In fact, in my 25 years of practicing law, I can recall only one instance where an Agreement of Sale provided that the buyer would forfeit their good faith deposit, but that was because the buyers had agreed to pay all cash for the purchase, so the Agreement of Sale did not contain a mortgage contingency clause.

I would be very surprised if your Agreement of Sale did not contain a similar contingency and also provide that the buyer would be entitled to the return of their good faith deposit if they could not secure a loan for the balance of the purchase price. Before filing any lawsuit against the buyers, you should read the Agreement of Sale to be sure that you are, in fact, entitled to the buyer's good faith deposit. Of course, not having read your Agreement of Sale, I cannot say anything for certain, but I believe that it is probably contingent on the buyer securing a mortgage loan for the balance of the purchase price and that the buyers are entitled to the return of their good faith deposit, if they cannot obtain financing and that is why their signature is needed to withdraw the money from the escrow account. In that instance, the money belongs to the buyers. So, I do not know why the broker is leading you to believe that you are entitled to those funds.

ANDREA