Keeping EMD, Your Opinions!

21 Replies

Without boring everyone with the story, I'll keep it brief.

I had a house that went under contract mid June (never listed it on the market). All inspections/appraisals took place. Come mid July (original closing date), it was found the title company had not pulled a municipal search (this takes 30 days). Come end of Aug the search came back good, buyers mortgage was all approved, appraisal was good, inspection was good, everything was in place. The phone call this morning, which should have been to schedule my closing, informed me the buyer was relocating to FL, and backing out of the deal...

Yes I have read the contract. Yes I have spoken to my attorney and once we receive the formal cancellation plan to revisit. Yes real estate is state to state and even town to town... however, what do you think my chances of being able to keep the EMD in this situation?

REI is business and emotions are best left out, but man it is hard to just laugh it off when a couple hundred thousand dollars is sitting in a house, that we missed the spring market and now have to list and go through the process again 2.5 months later! The famous saying I guess... "it is what it is".

I think you have a strong case for keeping those funds based on what you have posted. Relocating to another town is not a good reason to fail to close, unless they are in the military and are being redeployed. The whole point of earnest money is to provide the buyer a compelling reason to follow through and close on the deal. 

Many contracts have the EMD being dispersed as liquidated damages in the case of a default. Is that the case here?

Originally posted by @Russell Brazil :

Many contracts have the EMD being dispersed as liquidated damages in the case of a default. Is that the case here?

Yes there is language regarding EMD being dispersed to me as a form of LDs per contract. There is some other "language" in the contract that my attorney and I will be discussing, however as it stands it "seems" cut and dry.

Originally posted by @JD Martin :

I think you have a strong case for keeping those funds based on what you have posted. Relocating to another town is not a good reason to fail to close, unless they are in the military and are being redeployed. The whole point of earnest money is to provide the buyer a compelling reason to follow through and close on the deal. 

My realtor is working both sides and has been the point of contact on this as of this morning. There is no military deployment involved, but I was told relocating due to work. Not sure the exact specifics and imagine that will come in a formal cancellation today/tomorrow.

Originally posted by @Brian Pulaski :
Originally posted by @JD Martin:

I think you have a strong case for keeping those funds based on what you have posted. Relocating to another town is not a good reason to fail to close, unless they are in the military and are being redeployed. The whole point of earnest money is to provide the buyer a compelling reason to follow through and close on the deal. 

My realtor is working both sides and has been the point of contact on this as of this morning. There is no military deployment involved, but I was told relocating due to work. Not sure the exact specifics and imagine that will come in a formal cancellation today/tomorrow.

 In that case, they should receive reimbursement from their job. It's not your responsibility to subsidize the operations of their employer. I typically fall on the "deals fall through all the time" side of things but the buyer has a responsibility to close if they are able, and if they choose not to close they should pay that penalty. They could very easily follow through and immediately put the house back up for sale. Instead, you are being asked to carry the costs of their relocation for whatever reason - company need, better pay, better environment, etc. 

Originally posted by @Brian Pulaski :
Originally posted by @Russell Brazil:

Many contracts have the EMD being dispersed as liquidated damages in the case of a default. Is that the case here?

Yes there is language regarding EMD being dispersed to me as a form of LDs per contract. There is some other "language" in the contract that my attorney and I will be discussing, however as it stands it "seems" cut and dry.

Im normally against trying to get the EMD....but in the case where you have missed the spring market, and the reason for their default being a bad reason, then I would try to get the EMD in this instance. Id circle the part of the contract that talks about the EMD/Liquidated damages/default and send that to them, with an explanation that missing the Spring market will have done monetary damage to you.

@JD Martin I always side with the "deals fall apart for reasons all the time" camp as well. As it stands the house is on the market now within about an hour of the news getting to me and we are back to business. 

The frustration comes from the fact that we should have closed a month and a half ago, and had that happened this news wouldn't be my burden. 

@Russell Brazil agreed. I actually have a highlighted contract in front of me now, as I have spent some time reading through it. I am highlighting the good and the bad that way I can be as prepared as possible if/when the formal cancellation/requesting their EMD back comes in.

Deadlines are deadlines and the language of a state sanctioned / approved contract is usually pretty solid, but when it comes to keeping EMD, I usually don't put much energy into fighting for it. In the case of a default, I always come down really heavy-handed on the first notice saying I'm keeping it, but unless the defaulter just rolls over, I'm not going to do much to pursue the EMD.

Considering your agent was doing both sides, he/she will likely end up taking some heat from either the broker or the buyer for letting the thing fall apart and putting the EMD at risk.

I agree with some of the others -- that 2.5 months is a significant amount of time to consider your holding costs. In addition to that, even if you received a new offer of the same price and terms tomorrow it would still take another 30-45 days (at least in my market that is where a typical closing is coming in at) to get to closing. So now you are at 3.5-4 months that the original buyer has held you up. And this is best case scenario. Like you said... you are in a different market now due to the time of the year.

So you have the known damagers (holding costs since the day you went under contract with this original would be buyer to the day you actually do sell to another buyer) and unknown damages (different market so perhaps the price you get is lower). I'm sure there are better terms then "known and unknown damages" but hopefully you catch my drift. 

Best of luck to you on this one. 

Originally posted by @Blair Poelman :

Deadlines are deadlines and the language of a state sanctioned / approved contract is usually pretty solid, but when it comes to keeping EMD, I usually don't put much energy into fighting for it. In the case of a default, I always come down really heavy-handed on the first notice saying I'm keeping it, but unless the defaulter just rolls over, I'm not going to do much to pursue the EMD.

Considering your agent was doing both sides, he/she will likely end up taking some heat from either the broker or the buyer for letting the thing fall apart and putting the EMD at risk.

The agent is also the Broker, no one other than myself and the buyer to answer to. I am 99.999% sure he had no way to "keep it from falling apart". I know he received the phone call late last night where he was told about their side of the situation. He said he couldn't sleep, but I have two small kids so he waited and called me before 8 AM today to break the news. Knowing his personality I can guarantee he explained to the buyer that their EMD is at jeopardy/forfeited, but at this point it is into lawyers hands, not the agent. The good news is the house was listed on the market merely a couple hours after we spoke, but it's all back to square one at this point. A whole new inspection, title search, appraisal... the whole game again.

Chasing after the EMD assuming they don't just roll over and accept forfeit or some other agreement is something I have to discuss with my attorney. He painted a picture of the process for me so if it goes that route, he will really spell out the positive and negatives.

Originally posted by @Doug W. :

I agree with some of the others -- that 2.5 months is a significant amount of time to consider your holding costs. In addition to that, even if you received a new offer of the same price and terms tomorrow it would still take another 30-45 days (at least in my market that is where a typical closing is coming in at) to get to closing. So now you are at 3.5-4 months that the original buyer has held you up. And this is best case scenario. Like you said... you are in a different market now due to the time of the year.

So you have the known damagers (holding costs since the day you went under contract with this original would be buyer to the day you actually do sell to another buyer) and unknown damages (different market so perhaps the price you get is lower). I'm sure there are better terms then "known and unknown damages" but hopefully you catch my drift. 

Best of luck to you on this one. 

My biggest gripe from day one was the timeline, however there was only so much I can do being the seller. It took my side less than a day to create and send the contract (my attorney that is), then took over a week for the buyer to sign it. We actually had to push for them to get signatures. It was then into titles hands where I was informed a person working for the company "left" which is why the municipal search was not ordered for over a month. All items I found out day(s), a week or so later. I am being told now that a new buyer will have this same search requirement, and the title company does not order it until the lender has reviewed and agreed to loan. This seems very wrong to me, where I have to wait one month for commitment and then another minimum 30 days for a search. This means I have a MINIMUM 60 days to close from signing documents.

Hopefully this is not the case, as I will be approaching December for this house to close at this point, which is infuriating.

Deep Breaths... LOL

Good Luck,

I would recommend you make a play for it. Worse case you are going to have it locked up for them and they are going to have to make a fight to get released. The attorneys will end up deciding in the end, maybe you can get half.

Hope it works out.

@Mike Cumbie at the absolute minimum if they send over the formal cancellation we will respond back with our rejection. The saving grace I am being told is the dispute would not keep me from selling to another individual (one of my worries). This exact scenario is why I always tell people, NO deal is ever done until after you walk away from closing and the check clears. Someone could back out 30 seconds before closing and you are back to square one selling your house all over again. 

@Brian Pulaski I think it is reasonable in this case that you would keep the EMD. If it had fallen through due to inspection, financing, appraisal, etc. that would be different. Also it may be good to point out to the buyer that had they closed as planned, they would be trying to sell this house themselves, which after selling fees would cost way more than any EMD you will be keeping. They got off easy.

Originally posted by @Joe Splitrock :

@Brian Pulaski I think it is reasonable in this case that you would keep the EMD. If it had fallen through due to inspection, financing, appraisal, etc. that would be different. Also it may be good to point out to the buyer that had they closed as planned, they would be trying to sell this house themselves, which after selling fees would cost way more than any EMD you will be keeping. They got off easy.

Very true. The sad reality is their EMD was only 3% as well... so we aren't talking about some kind of large homerun deal here... it will barely cover my losses from the additional 3+ months I will be stuck with the house. Luckily I don't have a HML or high interest loan, unluckily I have my cash tied up in a house now for another 2-3 months (or more if we catch winter).

No update on the buyers, other than my realtor (their realtor also) expressed to them that they would not be entitled to their EMD back. He said they seemed to understand and "may not fight it that much" but as of this morning nothing formal has been sent along. We have lots of showings on the house and this contract could start messing up other offers.

I had my realtor reach out to the buyers agent... they have a call into my attorney and are waiting to hear back. I guess to discuss whether we need the formal cancellation in writing? The bull(stuff) from these buyers is getting annoying. They need to just formally cancel their contract like adults and move on...

The latest update is my attorney sent a letter indicating he received a voicemail on which the buyers were backing out in break of contract.

The other side attorney sent a formal reply stating that the job change/transfer would have the buyer no longer qualify for a mortgage and therefore is not in breach and wants their money back.

I'm waiting on my attorney for the next steps. The good news is the house sale beyond this previous buyer is going well... I always like to hold off and how well a house sells until a check clears for exactly the reasons I created this post.