Seller is refusing to sign Earnest money release form

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Seller is refusing to sign Earnest money release form

Bhanu P.
Investor · Katy, TX · Member since 2015 · 69 posts · 8 votes

I am in State of Texas and we signed TREC Contract.

In Section 7.B.2, we checked the box and the contract is executed, earnest money was left with title company. the text in that contract is below.

Buyer has not received the notice. Within 5 days after the effective date of the contract, Seller shall deliver the notice to the Buyer.If Buyer does not receive the Notice, Buyer many terminate this contract. if Seller delivers the notice, Buyer may terminate this contract for any reason within 7 days after the Buyer receives the Notice or prior to the closing, whichever first occurs, and the earnest money will be refunded by the Buyer.

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I am a Buyer in the contract and within 7 days after I receive the Seller's Disclosures, I provided the signed 'Notice to Terminate Contract' to Seller's agent through my agent;  requested them to sign the 'Release of Earnest Money' form.

After a week of postponing the signatures, we heard from the Seller's agent today stating that they need a portion of the Earnest money to sign the release form or else they state that they do not sign.

I believe the first step from my side is to send them a notice to sign through Title company and will wait 15 days for their response. please help me understand what should I do in terms of hiring an attorney or just need to wait for Seller's response after we send the notice through Title company?

First of all do the Title company need such form to be signed by Seller to release Earnest money as I gave the 'Notice to terminate' form?

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Guy Gimenez
Investor · Corpus Christi, TX · Member since 2012 · 2k+ posts · 1k+ votes
10y

@Jay Hinrichs

Title companies in Texas can hold the disputed amounts up to a two years. Fortunately, Justice of the Peace Courts (the "People's Court") handle amounts up to $10K so it's pretty easy to file an action for less than $150 and it can usually be resolved in less than 60 days. A title company won't release disputed funds without a finding by the JP Court.  Been there, done that.  

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    10y

    @Bhanu P.  on that kind of transaction who's Idea was it that you needed a 50K EM deposit... its one thing if your getting a smoking deal... like a 150k house for 80k or something and you want to make a statement but for an average deal.. I don't get it.. something is strange here

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  • Bhanu P.
    OP
    Investor · Katy, TX · Member since 2015 · 69 posts · 8 votes
    10y

    @Shadonna Logan

    Per Seller, they declined 6 offers (some of them are better than mine) since I am under contract.

    To mitigate that loss due to my contract termination, they want to either keep my entire EM after legal battle or to get $2000 from me without any legal battle.

    Seller did not spend any money to improve the property or such. Their claim is just the lost time and in fact it is same waste of time for me since I haven't put my money to work during this time.

    All I feel is that they are trying to use scare tactics on me. At this point, according to contract it is clear black n white on who/when/how should get EM.

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  • Bhanu P.
    OP
    Investor · Katy, TX · Member since 2015 · 69 posts · 8 votes
    10y

    @Jay Hinrichs

    On some of the Cash offers, I go with huge EM and quick closing to make my offer get picked among other potential offers. Basically I am making cash offer with no contingencies and huge EM to show the seriousness to Seller.

    This practice is something that I am following for some time and felt that it is giving good results than regular $1000 EM offers in this area.

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  • Shadonna N.
    Developer · . · Member since 2014 · 520 posts · 162 votes
    10y

    Doubtful they declined 6 offers.  If so, there should be no problem with them getting it sold.  Based on that rationale this stalemate is holding them up from taking one of those offers.

    1Reply
  • David C.
    Investor · Hillsboro, OR · Member since 2014 · 77 posts · 35 votes
    10y

    Just my two cents, I never give more earnest money then what I can fight over in small claims court. Here in Oregon that's 5k. So far it's always been 5k earnest money with a proof of funds bank statement along with proof of the other short sale homes I've bought. It's seemed like them knowing I've waited out the short sale process before and closed has helped

    2Reply
  • Michael Onuigbo
    Investor · Tampa/ St Pete, FL · Member since 2014 · 9 posts · 5 votes
    10y

    thanks for posting this up bud. I actually have a very similar situation going on in Florida right now. I am trying to avoid litigation and wasting money and time to fight it. I am interested to see how yours pans out.

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  • Bhanu P.
    OP
    Investor · Katy, TX · Member since 2015 · 69 posts · 8 votes
    10y

    @Michael Onuigbo

    Sorry to know that I'm not the only one and please do let us know on any update that you learn on your issue too. Thank you.

    0Reply
  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    10y

    @Bhanu P. Our FARBAR and state rules are different. If the EM is held by the broker, either party can have the broker request a Dispute Reaolution Order from FREC. Once they get that decision,mother broker can disperse th mounds without risk.  If the EM is at the title co., arbitration is a required first step, then it's a law suit.

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  • Account Closed
    Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
    10y
    Originally posted by @Jay Hinrichs:

    @Bhanu P.  PS I would be super pissed in your situation if an agent bungled the delivery as long as you did what you should have done in your time lines.

    5k and under I just would not get worked up... but over that amount and certainly 50 large would get me all fired up as well.

    For some of my bigger transaction I have used indepenndant escrow agents separate from title company and used unilateral escrow instructions that slant the transaction my way.. ERGO if I don't approve in writing on a certain day the EM is automatically realesed back to me.

    And if the agent did bungle the delivery, they should pony up the $2K to make this go away.  The seller only wants $2K of the $50K EM, which I find weird.  If the buyer and agent didn't meet the timelines, why wouldn't they ask for more?

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  • Account Closed
    Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
    10y
    Originally posted by @Bhanu P.:

    @Shadonna Logan

    Per Seller, they declined 6 offers (some of them are better than mine) since I am under contract.

    To mitigate that loss due to my contract termination, they want to either keep my entire EM after legal battle or to get $2000 from me without any legal battle.

    Seller did not spend any money to improve the property or such. Their claim is just the lost time and in fact it is same waste of time for me since I haven't put my money to work during this time.

    All I feel is that they are trying to use scare tactics on me. At this point, according to contract it is clear black n white on who/when/how should get EM.

    Ok.  Thanks for clarifying that the sellers want $2K of the EM for lost time on the market.  To be honest, that doesn't sound that far out to me.  I would try to get that from a buyer who tied up my property if it's an active market.  How many days total were you in contract before sending the cancellation?  Hopefully your paper trail and the agent's is air tight.

    1Reply
  • Michael Onuigbo
    Investor · Tampa/ St Pete, FL · Member since 2014 · 9 posts · 5 votes
    10y

    Now you say that Wayne, escrow is with the title company not broker. the reason I was not able to close was because the bank could not finish my financing in the time alloted in the contract, instead of allowing a few more days for the bank to finish, the seller backed out and stayed in the home. 

    It looks like the I will have to move to arbitration. However, I thought that inside Florida law it says that the escrow holder can release the funds back to the buyer if the reason for no sale was because of not being able to obtain financing, without having to go through the rest of the steps and without seller permission 

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  • Scott Carder
    Investor · Owasso, OK · Member since 2013 · 166 posts · 90 votes
    10y

    I would probably just give them 2k and consider it the price of education in this instance.

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  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    10y

    @Michael Onuigbo Nope, there's no law that lets the title co. decide anything in regard to releasing a deposit.  I was assuming you used the FARBAR, but maybe not.  We don't know the exact communications and time line of events in your case.

    0Reply
  • Jesse T.
    Herndon, VA · Member since 2014 · 1k+ posts · 324 votes
    10y
    Originally posted by @David C.:

    Just my two cents, I never give more earnest money then what I can fight over in small claims court. Here in Oregon that's 5k. So far it's always been 5k earnest money with a proof of funds bank statement along with proof of the other short sale homes I've bought. It's seemed like them knowing I've waited out the short sale process before and closed has helped

    That is definitely useful advice for future offers.

    Hopefully the seller does respond with a release.  They may have just been annoyed/angry and seen an chance with the large amount earnest money to get some money from you.

    A couple options to consider if you don't get a release:

    Is there an adjusted price where the deal still makes sense for you?

    How much is the hassle worth?  Maybe don't offer this initially, but it might be the easiest resolution.

    0Reply
  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    10y

    I didn't read all of this but have seen this before.

    Some sellers will not consent to release EM even if title can clearly see the buyer should get the EM.

    Sometimes a seller holds earnest money hostage to try and cover attorneys fees. They see we will release 50,000 now minus 4,000 for attorney fees or you can take us to court and win but you will spend a lot of time and wait months or longer to get your EM back.

    This is why you want to put language in the contract where title does not have to have earnest money agreement to release by the seller to return EM to buyer.  So title could then with a clear breach by seller or a clear termination with buyer being due EM could release. 

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  • Greg H.Pro Member
    Moderator
    Broker/Flipper · Austin, TX · Member since 2013 · 4k+ posts · 4k+ votes
    10y

    @Bhanu P.

    Are you certain your agent followed all of the timelines required without fail ?  I would call the seller's agent directly to make sure you have an understanding of the seller's position

    Anyone who has been in this business a while knows that sometimes we may even be 100% in the right and have had to suck it up and take a small loss in order to avoid a big one.  While $2000 hurts, I guarantee you tying up $50K and spending $1000s to get it back is going to hurt a lot more.  I night try to negotiate on the $2000 and try to get it cut in half but at the end of the day just take the loss and make it up on  your next deal

    On your next offer, do not offer more than $10,000 EM that you can recoup via small claims court.  In 99% of deals in the price range you indicated, $10,000 EM will get their attention the same as $50,000

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  • Neda Navidnia
    Property Manager · Houston, TX · Member since 2014 · 128 posts · 24 votes
    10y

    That's a great amount of EM, that's why they are refusing to sign. Hopefully you can have that without going taking legal steps.

    Next time I would pay a small portion in the beginning and the bigger portion after the option period. Like if the option period is 10 day, I would pay 1000 when signing the contract and the rest on the 11th day after the contract was executed.

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  • Bill Hamilton
    Denver, CO · Member since 2015 · 251 posts · 123 votes
    10y

    From a business standpoint, in many ways I understand the people who are saying take the loss of $2,000 and move on. But, assuming you did everything right and can prove it; I hate people who try and screw you out of earnest money, or anything else for that matter. I say take everything to an attorney, make sure you have all bases covered, and then sue the seller. This is a large enough amount that it goes to big boy court. Which also means your attorney gets to sue for his fees. Point being if the attorney is sure the case is good, he will be willing to do it on a contingency basis. And if your state allows for triple damages, as someone else mentioned in this thread, then the seller is facing massive losses both of the EM, possible damages and their own legal fees. I would also think that if you and your agent followed all procedures correctly, the sellers agent should be screaming at her clients to return the money and/or dropping those clients like a hot potato. I know that in some states, if the sellers agent is in essence colluding with the seller to illegally withhold funds and/or extort funds from you, then the sellers agent could be facing huge sanctions including loss of license and a visit from the fraud division of the local police. I know this may sound a little over the top but I have seen transactions go far enough off the rails that agents ended up with a felony conviction over it.

    On the over hand, court is always a risk and can be a very expensive roll of the dice. You need to figure out what your level of risk tolerance is.

    And by the way, this has been very eye opening for me. I did not realize that this type of escrow issue ever came up. I used to be a wholesale loan account exec and a mortgage broker so I have seen a huge number of transactions. Then again, I guess from the loan side of things either the loan closed and there is no issue with the escrow, or the deal fell apart and I was no longer involved in the deal. But having dealt with escrow in many states, I had never heard of this type of horror story. Now I need to do some further research of the procedures in the states I do business in and want to do business in, in order to minimize the potential for this type of problem.

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  • Humphrey Piccus
    Washington, DC · Member since 2015 · 11 posts · 1 vote
    10y

    you say that you sent "them" the notice to terminate within 7 days. Who is "them"? Do you have documentation that notice was sent to the seller or simply to the agent? Who is them?

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  • Naeem Kapasi
    Investor · San Antonio, TX · Member since 2015 · 227 posts · 66 votes
    10y

    @Bhanu P. I feel sorry for you buddy. Hopefully you won't loose any money on this, and that you offer lower EM in your future deals. 

    I learnt a lot by reading this post, thank you for posting and good luck dealing with the crook on the other side of the deal.

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  • Account Closed
    Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
    10y
    Originally posted by @Joel Owens:

    I didn't read all of this but have seen this before.

    Some sellers will not consent to release EM even if title can clearly see the buyer should get the EM.

    Sometimes a seller holds earnest money hostage to try and cover attorneys fees. They see we will release 50,000 now minus 4,000 for attorney fees or you can take us to court and win but you will spend a lot of time and wait months or longer to get your EM back.

    This is why you want to put language in the contract where title does not have to have earnest money agreement to release by the seller to return EM to buyer.  So title could then with a clear breach by seller or a clear termination with buyer being due EM could release. 

    Not sure how many, if any, in this thread have had buyers tie up their property and not perform.  I have. While it's the cost of doing business with retail buyers, I don't take it lying down if an investor buyer changes their mind or doesn't get their funding or whatever.  My business model is not based on profit by keeping EM. But absolutely I expect to be compensated if you tie up my property and walk.  You can be sure that if you or your agent miss a cancellation date or document I'll be all over that, and hold the EM until you negotiate with me.  Or at least make a case why you are canceling.

    Hopefully the OP has an airtight trail on his cancellation. If not, $2K is reasonable IMO.

    1Reply
  • Bhanu P.
    OP
    Investor · Katy, TX · Member since 2015 · 69 posts · 8 votes
    10y

    Update on the Earnest Money:

    • Title company forwarded the demand of Earnest Money release form to Seller on Dec 18th 2015.
    • Seller didn’t respond till Jan 4th 2015.
    • Since it is over 15 days since the notice, title company released the EM to me yesterday.

    In this transaction, I received 100% of the EM I do have in this deal with no cost and not even including any attorney but it took 15 days. As a fact, I do have mixed feelings on this result but moving on with the lesson learned…

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  • Kim Oceguera
    Wholesaler · Houston, TX · Member since 2014 · 15 posts · 2 votes
    10y

    Hey @Bhanu P.! I'm sorry to hear about the troubles you had, but glad that it worked out. Are you able to share or send a copy of the Demand letter you used? I wanted to look into this but couldn't find sample letters online relating to this topic...just lots of discussions.

    Thanks so much for starting this thread. Have a great day!

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  • Kim Oceguera
    Wholesaler · Houston, TX · Member since 2014 · 15 posts · 2 votes
    10y
    Originally posted by @Guy Gimenez:

    @Jay Hinrichs

    TREC forms don't contain binding arbitration...a problem I simply cannot understand and an issue that I address in my deals by adding a B/A agreement into an Exhibit which I incorporate into my contracts.  Only had to use B/A once and other party didn't even participate because she knew she had no legal grounds to push back...I prevailed in arbitration and got a judgement against the agent of which I've collected the majority. 

     Hi Guy,

    I really appreciate all your insight on this thread! Can you please share the B/A you use? I'd much rather be safe than sorry if ever faced with such a scenario (hopefully not). The fact that you're also in TX is fantastic. Sometimes it's difficult finding information specific to the state you're doing business in. Thanks so much!

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  • Erik D.
    Investor · Minneapolis, MN · Member since 2014 · 79 posts · 17 votes
    9y

    I recently cancelled a transaction on a property.

    There was a cloud on the title and the appraisal came in too low. The seller would no renegotiate, so I asked my agent to cancel the transaction.

    After I signed and the cancellation is submitted, my agent now cannot get in contact with the seller. Left e-mails, voicemails, texts, no response. It's like they vanished. The earnest money of $2,000 is with my agent's escrow company.

    My main problem is that I want to make an offer on another property! I can't do that unless I have a cancellation of another sale contingency at the moment.

    What is going on?

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