Earnest Money Deposit Not Refunded

Buying & Selling Real Estate
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Earnest Money Deposit Not Refunded

Account Closed
None · Member since 2018 · 125 posts · 46 votes

We just made an offer on a triplex that looked great, but turned out it needed about $30-60k worth of HVAC work from our inspection report and contractor bids (it was an old property and the system turned out to be totally shot). We had an inspection contingency clause in the contract that we could back out based on the result of the inspection and have the money refunded. 

The clause says exactly: 

“...If the Seller and Buyer cannot come to an agreement on rectifying the problem then the contract will be deemed null and void and the earnest money will be refunded to the buyer without interest.”

Our realtor is saying that in order for us to get our money back, the seller needs to sign a release and it isn’t looking good and we may never get this money back. 

Is it common to run into scenarios where you don’t get your earnest money back even if it is in the contract? 

 I understand there is a cost to doing business, but I don’t know how common/uncommon this is for the future or if something is wrong here. Deposit was only $500 but can’t obviously continue to pursue multiple properties if each time there is a chance we’ll be out $500. 

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Michael Magnell
Rental Property Investor · San Francisco, CA · Member since 2018 · 23 posts · 19 votes
7y

Put an EMD lien on the property. They won't be able to sell it with an active lien in place.

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  • Nick C.
    Investor · Tampa, FL · Member since 2011 · 2k+ posts · 3k+ votes
    7y

    Where is the EMD being held? If it's at a title company, that's true, they won't be able to release it until the seller signs the release. There are other way to get it back, but it will cost more than $500 unfortunately. That's how it works in Florida anyway, it may be different in DE. I'd keep after the seller, that's the easiest way to get it back, a lot of sellers take it personally when buyers back out during inspection. Maybe if you gave him $100 and you kept $400 he'd go for it.

    2Reply
  • Account Closed
    OP
    None · Member since 2018 · 125 posts · 46 votes
    7y

    @Nick C. it’s being held by the agent’s broker and the property is actually in NY.  Trying to look on the bright side that $500 lost is better than $30-60 thousand but still a shame. Learning experience I guess! 

    1Reply
  • David Avetisyan
    Rental Property Investor · Glendale, CA · Member since 2013 · 685 posts · 334 votes
    7y

    Push your realtor to collect on the money. If not, send a demand letter to the broker and seller. Also, inform the broker you will report him to the board and if nothing comes of that, small claims court.

    I don’t know if it’s not common, but I suggest going through escrow next time.

    To your success! 

    2Reply
  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    7y

    State laws/procedures vary but typically it is as Nick pointed out.....a title company doesn’t just decide who should get the EM, they need either an agreement signed by both parties, or a court order.  I suspect the broker is in the same boat.

    In FL, if the EM is held by the Brokerage (which I always recommend for this reason) they can get a decision from the real estate commission by asking for an Escrow Dispute Resolution.....after submitting any information the parties wish to submit.  This decision allows to disburse the EM as directed and legally removes the broker from liability, but the parties can still sue each other if they want.  I don’t believe this option is available in most states.

    3Reply
  • Mike CumbieBusiness Member
    REALTOR® · Brockport, NY · Member since 2015 · 3k+ posts · 4k+ votes
    7y

    HI @Account Closed

    It will even vary in NY based on where it is. In my area both parties have to agree before it is released. That being said neither party can really just take it. The seller is under contract so they cannot "relist it" with a disputed EMD and go under some other contract until it is resolved. Buyers can't really go under contract on something else (unless they are cash buyers and can do both). So in my area it is common for one or both sides to "posture a bit" until they find a new shiny penny and then cut bait and go with the new deal. Also we are an attorney state so before anyone starts cashing checks and buying a 12 pack, two attorneys have to agree on the outcome (or they send letters back and forth until one side decides it is no longer worth it and they have to resolve this so they can go on). Of course how much attorney time is $500 worth?

    So if you were using our contract the answer is "Yes, the buyer and seller have to sign or it stays in escrow forever". However the seller can't even entertain an offer until they are out of contract with you (and with emd they are still under contract unless you tell them they can keep it) 

    Good Luck!

    1Reply
  • Angelique F.
    Rental Property Investor · Atlanta GA · Member since 2013 · 122 posts · 83 votes
    7y

    @Kristin Caras

    Youre gonna have to raise 20 gallons of hell and do not give in till you get your money back, period.

    1Reply
  • Bryan Devitt
    Contractor · Oxford, MA · Member since 2018 · 807 posts · 745 votes
    7y

    @Mike Cumbie if that is true for this situation, I would demand it back and then wait. If they suddenly want you to sign off, drag it out for exactly how many days they drag it out for.

    1Reply
  • Mike CumbieBusiness Member
    REALTOR® · Brockport, NY · Member since 2015 · 3k+ posts · 4k+ votes
    7y

    @Bryan Devitt

    Depends on how much she wants the EMD back. Anything verbal doesn't count. It sounds like she signed a cancellation and is waiting on them. She can't just "re-wait" after they do sign. It's only 2 sides. If neither side sends the form, then the deal is going and the other side may have a more valid argument to get it (Didn't respond in time for the inspection period)

    Personally I don't fight a whole lot on principal anymore. I fight on whatever is best for my client (or me). As do most (if not all attorneys I work with). Sometime the best answer is "move on". It is also a reason a large EMD can make a lower priced deal work. Who wants to risk $20K? Even if it means just losing it for a few months while they fight? I have had a side put full offer price in escrow.

    1Reply
  • Jesse Swagerty
    Flipper/Rehabber · Houston, TX · Member since 2019 · 15 posts · 11 votes
    7y

    @Kristin Caras

    We had this happen once. Seller wouldn’t even respond to escrow agent. We eventually got it back after a minimum time had passed without response.

    Your agent’s broker should have a legal counsel to advise them on the local law for this. That’s the whole point of EM going to escrow and not the seller. EM still belongs to you until closing or default on your part.

    1Reply
  • Michael Magnell
    Rental Property Investor · San Francisco, CA · Member since 2018 · 23 posts · 19 votes
    7y

    Put an EMD lien on the property. They won't be able to sell it with an active lien in place.

    3Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    7y

    Theres no way $30-60k is an accurate estimate. If you put that kind of number in front of them they likely feel you are not negotiating in an ethical manner and are in turn responding in a similar way back.

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    2Reply
  • Ronald Starusnak
    Property Manager · Syracuse, NY · Member since 2016 · 601 posts · 384 votes
    7y

    I had this problem with the HUD listing agent in my area of NY. I threatened to contact the Department of State and he immediately got my earnest money back. In my case the bank declined our offer on the short sale and the seller tried to keep my $1,000 deposit.

    1Reply
  • Michael Noto
    Real Estate Agent · Southington, CT · Member since 2008 · 5k+ posts · 3k+ votes
    7y

    @Account Closed The only leverage you have in this situation is the seller cannot relist the property and/or get into a contract with another buyer until your contract is officially terminated which is offically done by them signing that doc. Tell your agent to be on top of if the property is relisted and/or if it goes under contract again. 

    If your agent is being ignored by the sellers agent, then have your agent contact their broker. You fulfilled your obligation that the contract outlined. Whether it is $500 or $5000 you should get your money back in full.

    In regards to the HVAC quote you received, that sounds outrageously high even if the system is shot. Who gave that estimate? The inspector or a licensed HVAC pro? Either way, sounds crazy high. 

    1Reply
  • Account Closed
    OP
    None · Member since 2018 · 125 posts · 46 votes
    7y

    Thank you everyone for your input! We actually just received the signed release so our money will be refunded soon. This was definitley a learning curve and I appreciate all the help!! 

    1Reply
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