Seller wont release EMD and is threatening to sue me

Riverside, California
Tax, SDIRAs & Cost Segregation
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Seller wont release EMD and is threatening to sue me

Shane Pico
Member since 2021 · 15 posts · 10 votes

Hello all and thank you for any help!

I attempted to buy my first STR and it hasn't gone perfectly... But at least I've learned a lot so far! I am now at a place where it feels like I need a lawyer or at least some legal advice. Here's the run down:

Price: $550,000 - I signed an appraisal waiver - 1st appraisal: $425,000 - 2nd appraisal: $475,000 - my lender wrote a decline letter stating they wouldn't fund the loan (part of the loan required I had a certain amount of reserves in the bank and if a covered the difference I wouldn't have enough which is why they wouldn't fund)  - I sent over the decline letter and signed the cancelation of escrow and release of funds letter - a week later the seller offered to carry the loan with very poor terms - the seller is now trying to keep my emd ($16,500) - they are also threatening to sue me for incurred losses if I don't give it to them - they are claiming that because they offered to carry the loan, that I backed out of the purchase in bad faith and had no intent in purchasing. The simple truth is that the lender refused to fund the loan and I did not sign a loan contingency waiver. I even offered to give them $1,500 as a peace offering to get this wrapped up quicker. Yet here I am! lol

These are just the basics to the whole dilemma, I believe they have no legal right to any of my money, but before i go down this road I would love to have any bit of advice this community has to offer. I am still pretty new to this world so this can potentially be a huge set back for me if I don't handle it properly.


Thank you for everything BiggerPockets Fam!

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Russell BrazilBusiness Member
Moderator
Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
4y

Tell them if they dont release the EMD you will file a lis pendens so they won't be able to sell the house with the cloud on the title. It is an empty threat....but an empty threat that has proven to be very successful.

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  • Sergey A. Petrov
    Real Estate Consultant · Seattle, WA · Member since 2022 · 1k+ posts · 784 votes
    4y

    I am not familiar with CA standard forms or real estate laws, but an appraisal contingency and a financing can but need not go hand in hand in WA. If you signed an appraisal waiver, you may still have an out under the financing contingency depending on how the PSA is structured. Seller's remedy due to Buyer's "failure to perform" is also a part of WA standard PSA - the Seller either gets to choose what they do or the Seller's claim is limited to just the earnest money. What does your broker say? 

    Outside of that, I am curious how much the property was listed for to being with.... A $550k offer with an appraisal waiver must have been based on some reasonable comps I hope... But when the appraisal comes in 20% lower, something doesn't sound right.



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  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    4y

    Tell them if they dont release the EMD you will file a lis pendens so they won't be able to sell the house with the cloud on the title. It is an empty threat....but an empty threat that has proven to be very successful.

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  • Sergey A. Petrov
    Real Estate Consultant · Seattle, WA · Member since 2022 · 1k+ posts · 784 votes
    4y
    Quote from @Russell Brazil:

    Tell them if they dont release the EMD you will file a lis pendens so they won't be able to sell the house with the cloud on the title. It is an empty threat....but an empty threat that has proven to be very successful.

    An empty threat it is. My response would’ve been - go for it. I’ll buy a bond to wrap around your lis pendens so I can still sell and will then come after you for filing frivolous actions 😁
    2Reply
  • Shane Pico
    OP
    Member since 2021 · 15 posts · 10 votes
    4y
    Quote from @Sergey A. Petrov:

    I am not familiar with CA standard forms or real estate laws, but an appraisal contingency and a financing can but need not go hand in hand in WA. If you signed an appraisal waiver, you may still have an out under the financing contingency depending on how the PSA is structured. Seller's remedy due to Buyer's "failure to perform" is also a part of WA standard PSA - the Seller either gets to choose what they do or the Seller's claim is limited to just the earnest money. What does your broker say? 

    Outside of that, I am curious how much the property was listed for to being with.... A $550k offer with an appraisal waiver must have been based on some reasonable comps I hope... But when the appraisal comes in 20% lower, something doesn't sound right.




     Thank for the reply! My broker says they have no claim, the appraisal and loan contingency are independent of each other so the decline letter is where the buck stops, and "I should tell them too pound sand" lol

    Also, we were all extremely surprised with the appraisal. The property is in Joshua Tree CA which is pretty strange market to begin with, but I have been tracking it for a long time and I was confident in the price. They listed it for 550k and I offered that. I have seen smaller less updated homes sell for 700k + but those houses must not have been close enough. Another sign of my inexperience I guess. I should of put a cap on the appraisal waiver...

    1Reply
  • JD MartinBusiness Member
    Moderator
    Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
    4y

    Where is your agent in all of this?

    Your RE contract would/should have given you several possible outs. Inspection contingency, where you can walk for any reason or no reason whatsoever is one. Financing contingency is another. Some various lesser ones like inability to deliver clean title, damage after the contract, etc. If you have any of them in place and duly exercised one before the deadline of the contingency, they have no case and your money will have to be returned. If you missed deadlines, that's another story altogether. 

    Who is holding your earnest money? 

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  • Shane Pico
    OP
    Member since 2021 · 15 posts · 10 votes
    4y
    Quote from @Sergey A. Petrov:
    Quote from @Russell Brazil:

    Tell them if they dont release the EMD you will file a lis pendens so they won't be able to sell the house with the cloud on the title. It is an empty threat....but an empty threat that has proven to be very successful.

    An empty threat it is. My response would’ve been - go for it. I’ll buy a bond to wrap around your lis pendens so I can still sell and will then come after you for filing frivolous actions 😁

     I feel like they just sent me an empty threat as well which is ironic.lol

    1Reply
  • Shane Pico
    OP
    Member since 2021 · 15 posts · 10 votes
    4y
    Quote from @JD Martin:

    Where is your agent in all of this?

    Your RE contract would/should have given you several possible outs. Inspection contingency, where you can walk for any reason or no reason whatsoever is one. Financing contingency is another. Some various lesser ones like inability to deliver clean title, damage after the contract, etc. If you have any of them in place and duly exercised one before the deadline of the contingency, they have no case and your money will have to be returned. If you missed deadlines, that's another story altogether. 

    Who is holding your earnest money? 


     My agent at this point is a middle man for information. he's still involved, but no more qualified to handle this than I am.

    I am checking the loan contingency deadline right now.

    desert escrow is holding my money (small local escrow company)

    0Reply
  • Shane Pico
    OP
    Member since 2021 · 15 posts · 10 votes
    4y
    Quote from @Shane Pico:
    Quote from @JD Martin:

    Where is your agent in all of this?

    Your RE contract would/should have given you several possible outs. Inspection contingency, where you can walk for any reason or no reason whatsoever is one. Financing contingency is another. Some various lesser ones like inability to deliver clean title, damage after the contract, etc. If you have any of them in place and duly exercised one before the deadline of the contingency, they have no case and your money will have to be returned. If you missed deadlines, that's another story altogether. 

    Who is holding your earnest money? 


     My agent at this point is a middle man for information. he's still involved, but no more qualified to handle this than I am.

    I am checking the loan contingency deadline right now.

    desert escrow is holding my money (small local escrow company)


     And actually my broker said I should suing my agent for not protecting me. But I just want to get my money and move on

    0Reply
  • Lori Goldsmith
    Realtor · Beverly Hills, CA · Member since 2022 · 31 posts · 24 votes
    4y

    Hey Shane,

    don't just Threaten to file a Lis Pendens, actually follow through on it. 

    The seller will have a cloud on title and will not be able to sell to anyone. Either the seller will be infuriated because he cannot sell the home or the second buyer loses the property to the first buyer, You.

    Voila!

    I'm in California so feel free to reach out with any questions.

    Lori 

    3Reply
  • Jacob Taylor
    Member since 2022 · 1 post · 0 votes
    4y

    First, no one on here can help you.  It depends on the contract language, which differs depending on the region, and into a grey area few agents get into.  Thats attorney territory, and I understand contracts better than 99% of other agents.  Second, actually filling anything frivolous like a lis pendens(beyond just threatening it) seems to be terrible advice, as it just opens you up to an actual suit for actual damages you have caused.

    Third, if you are inexperienced, you should use an experienced agent.  Otherwise you end up with the blind leading the blind in important matters, and the cost to you is the same whether the agent knows his/her stuff or not.  Once you are experienced thats one thing, but no reason not to get good help until you know what help you need.  My experienced investors basically just needed me for basic stuff, and my inexperienced ones couldnt take a step without me and were like children.  Theres a big difference between the two, and again, the cost to you is the same.

    0Reply
  • Bill B.
    Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
    4y

    They also can’t sell without returning your money so I don’t know what good the additional Lis pendens does. 

    Your realtor should, but you probably can, contact the title company and say the sale fell apart, please start the action to return my EMD.

    Ps. I don’t know why the real estate broker would tell you to sue your agent (their employee) but certainly I don’t see any mistakes the agent made, especially if it was your idea to waive appraisal. Even if it was their idea it’s not their fault unless they didn’t explain what it meant. 

    5Reply
  • Sergey A. Petrov
    Real Estate Consultant · Seattle, WA · Member since 2022 · 1k+ posts · 784 votes
    4y

    yep, start with your agent, broker, and their designated broker. depending on what the actual docs say, they may be able to untangle it quickly (do escalate to managing / designated broker within the firm that represented you). either you are missing something and may be in default or your agent / whoever you are talking to is missing something (or it is over their head) and you owed your earnest money. the devil is always in the details and you need someone who can read the actual docs / contracts and advise you properly. we are all just sitting here guessing based on what you wrote. 

    0Reply
  • Bruce WoodruffPro Member
    Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
    4y

    I'd be contacting a Real Estate Attorney and buying an hour of his time real quick if I were you.....

    Your agent sounds like a bad (or maybe just weak) one. Once you get out of this, I'd get a new agent first thing.

    5Reply
  • Shane Pico
    OP
    Member since 2021 · 15 posts · 10 votes
    4y
    Quote from @Sergey A. Petrov:

    yep, start with your agent, broker, and their designated broker. depending on what the actual docs say, they may be able to untangle it quickly (do escalate to managing / designated broker within the firm that represented you). either you are missing something and may be in default or your agent / whoever you are talking to is missing something (or it is over their head) and you owed your earnest money. the devil is always in the details and you need someone who can read the actual docs / contracts and advise you properly. we are all just sitting here guessing based on what you wrote. 


     Much appreciated. I wasnt expecting somebody to give me the answer straight up, just needed some direction on what to do now. im reading through all the documents now. 

    0Reply
  • Shane Pico
    OP
    Member since 2021 · 15 posts · 10 votes
    4y
    Quote from @Bruce Woodruff:

    I'd be contacting a Real Estate Attorney and buying an hour of his time real quick if I were you.....

    Your agent sounds like a bad (or maybe just weak) one. Once you get out of this, I'd get a new agent first thing.


     Thanks for the input! i agree, probably smart to speak to attorney.

    and thats very valid, This is the first time ive used him (new region of investing) he seamed legit until things got messy. Now he just looks lost. 

    0Reply
  • Bruce WoodruffPro Member
    Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
    4y
    Quote from @Shane Pico:

     We call that a clue around here..... :-)

    0Reply
  • Shane Pico
    OP
    Member since 2021 · 15 posts · 10 votes
    4y
    Quote from @Bill B.:

    They also can’t sell without returning your money so I don’t know what good the additional Lis pendens does. 

    Your realtor should, but you probably can, contact the title company and say the sale fell apart, please start the action to return my EMD.

    Ps. I don’t know why the real estate broker would tell you to sue your agent (their employee) but certainly I don’t see any mistakes the agent made, especially if it was your idea to waive appraisal. Even if it was their idea it’s not their fault unless they didn’t explain what it meant. 


     I mispoke, I called a broker I trust, family friend, used them before, but not involved in this deal.

    0Reply
  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    4y

    @Shane Pico @Bruce Woodruff I’m not seeing where your agent has dropped the ball here. Your agent can control the actions of a seller…the seller’s agent should be talking them back off the ledge though.

    0Reply
  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    4y

    @Shane Pico @Bill B. @Lori Goldsmith At least here, there is no valid basis for filing a LP….the contract is dead so the buyer has no interest or claim on the property itself…..this is solely a dispute over the EM being held in escrow.  Been there, done that….I had a buyer walk away at the closing table.  We obviously kept their EM, but my agent thought we couldn’t relist/sell to someone else until the EM dispute was resolved.  I had to find the law (and have them call the state realtor legal hotline) so they understood the EM dispute was now a stand alone issue.

    2Reply
  • Tony Kim
    Rental Property Investor · Los Angeles · Member since 2018 · 844 posts · 1k+ votes
    4y
    Quote from @Shane Pico:

    Hello all and thank you for any help!

    I attempted to buy my first STR and it hasn't gone perfectly... But at least I've learned a lot so far! I am now at a place where it feels like I need a lawyer or at least some legal advice. Here's the run down:

    Price: $550,000 - I signed an appraisal waiver - 1st appraisal: $425,000 - 2nd appraisal: $475,000 - my lender wrote a decline letter stating they wouldn't fund the loan (part of the loan required I had a certain amount of reserves in the bank and if a covered the difference I wouldn't have enough which is why they wouldn't fund)  - I sent over the decline letter and signed the cancelation of escrow and release of funds letter - a week later the seller offered to carry the loan with very poor terms - the seller is now trying to keep my emd ($16,500) - they are also threatening to sue me for incurred losses if I don't give it to them - they are claiming that because they offered to carry the loan, that I backed out of the purchase in bad faith and had no intent in purchasing. The simple truth is that the lender refused to fund the loan and I did not sign a loan contingency waiver. I even offered to give them $1,500 as a peace offering to get this wrapped up quicker. Yet here I am! lol

    These are just the basics to the whole dilemma, I believe they have no legal right to any of my money, but before i go down this road I would love to have any bit of advice this community has to offer. I am still pretty new to this world so this can potentially be a huge set back for me if I don't handle it properly.


    Thank you for everything BiggerPockets Fam!


    Why did a week pass between submission of the release of funds letter and then the seller offering to carry the loan? It should not have taken that long... Did anything happen in that period that would cause the escrow company to delay returning funds to you? I hope you didn't have some kind of ongoing discussion with the seller on alternative methods of financing the loan.... 

    0Reply
  • Sergey A. Petrov
    Real Estate Consultant · Seattle, WA · Member since 2022 · 1k+ posts · 784 votes
    4y
    Quote from @Wayne Brooks:

    @Shane Pico @Bruce Woodruff I’m not seeing where your agent has dropped the ball here. Your agent can control the actions of a seller…the seller’s agent should be talking them back off the ledge though.

    The agent might have dropped the ball with communication. We all know there is a million things that go into a real estate transaction. I can write up an offer very quickly. Making sure it is to the liking and more importantly the risk level of my client is a different thing. And not projecting your own risk tolerances and preferences onto what you are writing on behalf of a client can be hard. More so with a new investor. My risk tolerance is higher than average but I get rewarded in the end (yes sometimes I spend unnecessary dollars on due diligence, sometimes I may limit the due diligence to win the offer and then negotiate EM if I end up walking, and sometimes it is something in between). As long as you know your client’s risk levels and other preferences and can properly weigh that against whatever market conditions you are facing, the chances of your client saying you screwed up are slim to none. Could be and happens often but…
    0Reply
  • Shane Pico
    OP
    Member since 2021 · 15 posts · 10 votes
    4y
    Quote from @Wayne Brooks:

    @Shane Pico @Bruce Woodruff I’m not seeing where your agent has dropped the ball here. Your agent can control the actions of a seller…the seller’s agent should be talking them back off the ledge though.


     I haven't really stated anything to make it look that way, he's been alright to be honest. Now that I am where I am he's no help though. but I didn't come here to bash my agent, he's learning as he goes same way I am. i've clearly made some mistakes myself, just trying to figure out where to go from here.

    0Reply
  • Shane Pico
    OP
    Member since 2021 · 15 posts · 10 votes
    4y

     im not sure honestly. I definitely had no contact or discussion with seller. I called the escrow company and asked for my money back and they said they still need some documents sent over?

    0Reply
  • Tony Kim
    Rental Property Investor · Los Angeles · Member since 2018 · 844 posts · 1k+ votes
    4y
    Quote from @Shane Pico:

     im not sure honestly. I definitely had no contact or discussion with seller. I called the escrow company and asked for my money back and they said they still need some documents sent over?

    OK, that's good to hear. Typically the escrow company needs consent from both parties before sending out any funds, even if it's a return of EMD. I'll bet the buyers reneged on signing the form pertaining to the return of funds.

    In California, the standard form contains language that these types of disputes will go to a mediator instead of court. So typically, consulting an attorney for these types of situations is not needed, but at the same time it also sounds like your agent might be too green to do his/her part should this situation go to mediation. Your agent has to effectively present the steps you guys took along with the timeline...and clearly show that you took the proper steps to cancel escrow before the contingency period ended. BTW, you're under no obligation to accept seller financing. The sellers seem to be acting in a very predatory manner.  I sure do hope you get your money back...keep us posted!

    1Reply
  • Juan V Lopez
    Investor · Las Vegas, NV · Member since 2020 · 153 posts · 136 votes
    4y

    Sorry to hear that, Shane. Coincidentally enough, I just went through a similar ordeal. Smaller EMD that the seller was trying to keep – $5K.

    Long story short: We can “hope” people do the right thing. More often than that, you have to sue.

    My attorney send the seller's attorney that I was filing a case in the municipal court against the seller. The EMD was returned to me shortly after. If it was not returned to me, I would have followed through on filing a case.

    Hoping you have a strong attorney & wish you the best, brother. 

    2Reply
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