Home Buyer Can Kiss His Earnest Money Deposit Goodbye
A homebuyer can kiss his earnest money deposit goodbye. You may ask, How can a home buyer kiss her money goodbye? The excerpt below in italics is from a blog Elizabeth wrote several years ago. It still holds today. It got me to thinking about a tricky technicality in this deposit forfeiture that you may find interesting.
I represented two buyers on a short sale in Roseville. She and her fiance bought it together. The listing agent was someone who said he was the #1 short sale agent in Sacramento, but, of course, we all know that title was well deserved and earned by the one and only, Elizabeth Weintraub. Well, the couple broke up. Mister buyer went packing, and he had not been removed from the contract, nor did the listing agent ever request it. Should I have removed him, probably, but I knew these two, and they broke up and went back together regularly.
Miss Buyer had removed her contingencies, but Mister had not signed as they were squabbling. Well, lo and behold, I send the cancellation to the listing agent. He replies: we are keeping the buyers’ deposit. I reminded him that Mister Buyer had not released his contingencies. He said, but they broke up, and Miss Buyer released her contingencies.
Well, the seller took my clients to a Small Claims Court. I went with them to testify. I showed the judge our documents and explained Mister had not been removed from the purchase agreement and had not released contingencies. I added one more thing. Your Honor, a seller cannot profit from a short sale and must disclose any funds and income received.
The seller had since sold the property. The judge said as she can not profit and as she had sold her house, what were her damages? I reminded him she was not making payments; that’s why it was a short sale. I said if the deposit were found to be in jeopardy, the bank would be the party to receive those funds. OMG, the seller went crazy. She asked the judge why wasn’t her agent there with her? She said that I should have told her that her agent should have attended court with her.
You get what you pay for. Full service means I accompany my clients to Small Claims. The judge explained to the seller that I did not represent her and was not responsible for her agent’s absence. Additionally, I wasn’t responsible for explaining anything to her. What do you think happened? The judge ordered a full return of my client’s deposit. He did not have to kiss his earnest money deposit goodbye.
Now, for more from Elizabeth:
As a Sacramento real estate agent, I take precautions on behalf of sellers. It’s my job. For example, I routinely ask the buyer to sign a contingency release by the termination date for contingencies. Many listing agents don’t demand a contingency release from buyers because they don’t want to rock the boat or they don’t think of it. What a contingency release does, providing all of the contingencies are released, is put the buyer’s earnest money deposit at risk. It basically says if the buyer later elects to cancel, the earnest money deposit belongs to the seller.
Of course, if the buyer wants to contest the release, the money is not automatically released. Escrow requires mutual consent. In that case, the seller can take the buyer to Small Claims court and fight for the deposit there. Either way, once contingencies are released, the seller is generally entitled to the earnest money deposit. Elizabeth Weintraub.
If you want to have confidence that if you end up in Small Claims we will be right there with you, call Weintraub & Wallace with RE/MAX Gold for full-service representation. We can be reached at 916-233-6759. –JaCi Wallace