Closing escrow Friday- seller keeping future rents

8 Replies

I’m in a bit of a jam. I’m scheduled to close escrow and record with Kauai on my newest short term vacation rental this Friday. My loan was funded today and all the documents are handled.  I thought this was a done deal. 

In the purchase contract we agreed to honor all future reservations and the seller agreed to forward by way of cashiers check the tota rents, taxes, cleaning fees etc to me for said future bookings. 

She mailed the check to HER realtor today and told him not to deliver it to my realtor until Friday after it records. I insisted my realtor find how how much the check was for just to make sure...

Sure enough the check was for around 11k, when it should be closer to 30k. She blatantly tried to short me and was hoping it wouldn’t be discovered until after it recorded. 

My realtor got escrow to push closing a few days to figure it out. 

My question is, if she decides to just not pay it, can I simply cance the reservations and rebook my own? I don’t want to lose the condo so backing out isn’t really An option. My realtor said I might be in a grey area because I contractually agreed to honor all existing reservations, but that was based on the stipulation that she forwarded the payments received by the guests. 

Where do I stand?

Interesting issue.  Imo would be better to rebook stays as if/when anything happens, damages or some emergency... on the actual stay dates, it’s going to be your issue right?  Be that as it may, for now, to get through closing maybe try asking escrow to do a holdback of funds to go to the seller later based on schedule of “rents” due to the buyer.  They can net it out later based on what bookings actually happen and what seller remits.  My escrow does holdbacks all the time for lots of different issues.

@Tyler Mullen , I was told escrow can only do a holdback if the seller agrees to it in writing which she doesn’t. 

Has that not been your case?

Yes, all sides in an escrow would need to sign off on the terms and amount of a holdback... and at this last hours in the process you're in a tough spot as this kind of thing is better discussed, circulated and agreed to earlier so people have time to engage their long term thinking about it, their ethical brain about it.  The seller might have a chance to make a little easy short term gain here, but at what cost?

In similar situations I have faced, it was in my agent, the sellers agent and the sellers best long term business reputation/ethical interest to agree to a holdback, or some other remedy, that the buyer and seller complete the transaction equitably.  In other words, my agent talked to the sellers agent and explained that something, like a holdback, needed to be done, otherwise the seller agent reputation, and the sellers reputation, in the business community could suffer.

Incidentally, was the $11,000 the seller sent just the amount they received so far for bookings, maybe the seller is still doing what they said initially but just not in the way you expected?  Are you sure they are trying to short you?  This is a great example of when agents can really earn their keep to smooth out communications and settle ruffled feathers.

@Tyler Mullen , thanks for helping.  Appreciate you taking the time to respond so thoughtfully.  

This was all discussed well in advance.  We never specified the exact amount because we've been delayed a few times, and each delay shortens the total, but it was written into the contract clearly and she is in violation.  I have no doubt I would win a lawsuit but I would rather avoid it.  She received 100% of the rents already, and this is just for the next 3 1/2 months of rental obligations and then the calendar is empty.

The sellers realtor is on our side and passed it to her broker since she's pretty upset by the situation, and she was expecting the check to be larger too.  But at the end of the day, it feels like the seller is just trying to pull a fast one on us.  Shes older, moved out of state, and has some medical issues.

I'm specifically trying to figure out if I can legally just cancel all the reservations and start fresh.  She isn't fufilling her end of the contract, so I would 'hope' it would void my obligation to honor the reservations.  I'm fine if the guests want to go after her for their money back.  I dont want them coming after me.

Sure, I'm happy to help.  If this was me I would question my agent and escrow patiently but carefully because I would wonder why they seem agnostic about an element in the contract which is required to close but doesn't specify an amount.

I prefer to agree initially to a default holdback amount (an amount that favors the buyer in order to motivate the seller to perform) should the seller not specify a finalized rent schedule and amount within 24 hours of closing.

Just my personal experience, I'm not an attorney nor providing legal advice.

Unfortunately you have backed yourself into a corner by taking the position that you will not cancel the deal and wish to avoid legal action. 

Pretty well have thrown all your leverage into the bin. At this point all you can do is hope the seller comes around or take the deal at a loss. Those appear to be the choices you have given yourself.

So technically the contract does specify an amount. She was to pay you the total rent for all paid bookings received to date.  Basically, what I would do is have her break out the payments that the 11k check belongs to. And then let her know those are the only bookings that she is representing she received to date. Everyone else will be cancelled and need to rebook.

And if she did in fact get money from other people, they will likely sue her.

And that would be my advice in terms of what would happen there. You, as the buyer, have only agreed to honor those bookings that have paid to date. The owner is sending you a check with a detailed explanation of which bookings the monies in that check are from. And the owner is then on the hook for any bookings she's collected from but is reporting to you that were not paid.

There is no way the bookings could come after you. They would have to go after the owner. And more than likely they would get made whole by whatever vrbo service they went through. And the vbro service would be the one that would go after the owner.

I don't think there's any gray area whatsoever there as long as you're contract was clear:
1) Owner would turn over all prepaid booking money received to date.
2) You would honor all bookings where you received the payments from the owner.

So let the owner justify her check and tell you which bookings are included in the payments as being prepaid and which ones aren't. Then you'll have a legal trail to go back to so you can show that the owner was the one that stiffed those people since she will have to explicitly state they did not prepay for their booking.

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