Legal Question Regarding EMD (Specifically in MI)

11 Replies

All,

I believe I know the answer to this but am going to ask anyway. I was in contract for a property with an escrow that ended up being around 3 months (yes, obnoxious I'm aware). I initially offered and had acceptance as a cash offer. I later decided I wanted to finance the deal instead of use cash which was signed off by the sellers.

This property had a foundation issue that I was not aware of the severity of as I didn't see the property in person until I was well into escrow. I'll save the details but bottom line, after getting an engineering report and providing it to my lender, they said they would not be able to fund the deal unless the suggested repairs in the report were made. This seller was not interested in doing the repairs and I was not willing to proceed paying cash and having to deal with a problem that would ultimately cost me 15-20K to fix at some point down the road if I ever wanted to sell.

Now, the seller is refusing to release my EMD. I didn't have any specific contingencies initially but when the seller signed off on the deal becoming financing, according to this purchase agreement (standard Realtor form), if I were to have selected financing initially, the deal would have been contingent on being able to obtain financing. I'm assuming that since the seller signed off on that, the deal in its entirety is now contingent on me being able to obtain financing.

Since the lender won't lend without the repairs done (we went through 2 different lenders), I can't imaging the sellers have any ground to stand on here, do they?

The agreement says that any disagreements will be dealt with in court and the non-prevailing party will be responsible for all legal fees associated here. This would be a major mistake for the seller assuming that my contingency is accurate. The EMD is only $500 and it would be a complete waste of time and money on their end and I know they don't have much of either.

Bottom line, am I accurate in assuming they don't have a leg to stand on here since nobody will lend on the property and they signed off on it being a financing deal?

This is a question for your attorney. In my layman's opinion, you and the sellers renegotiated your original contract, which voided the original contract. The new contract is the enforceable one. If the contract langual stipulates that the offer is contingent upon obtaining lender financing, then you can void this contract on that contingency and have your EMD returned.

Getting the seller to sign off on the refund may be difficult and the escrow holder may be bound to keep the EMD in escrow until the seller releases it. Your attorney can explore your options such as placing l lien on the property to taking the seller to court.

Originally posted by @Dave Toelkes :

This is a question for your attorney. In my layman's opinion, you and the sellers renegotiated your original contract, which voided the original contract. The new contract is the enforceable one. If the contract langual stipulates that the offer is contingent upon obtaining lender financing, then you can void this contract on that contingency and have your EMD returned.

Getting the seller to sign off on the refund may be difficult and the escrow holder may be bound to keep the EMD in escrow until the seller releases it. Your attorney can explore your options such as placing l lien on the property to taking the seller to court.

Fair enough - I'm confirming my train of thought is simply in the right place before I consider getting an attorney involved.

There was a no new contract. Simply an addendum to the original stating that the deal is now going to be financed rather than a cash deal. Given that it's an addendum to the original terms (which has a financeable deal contingent on being able to obtain financing), I'm assuming those terms remain.

I should have clarified, the seller wants the EMD released to them which is obviously not happening.

If my train of thought is correct and I go to an attorney to dispute this, I can only seeing this as causing major problems for the seller.

Thanks for the reply.

HI @Curt Frieden ,

DISCLAIMER: Not legal advice just the mindless ramblings of some dolt on the internet. For entertainment purposes only. I was born and raised in MI, but have not sold RE there so am unfamiliar with the contracts. 

Without seeing the document everyone signed off none of us will be able to make a determination. If it was a Word doc saying "Buyer is not using conventional loan" then I would be hard pressed to say somehow that was adding a financing contingency to your original contract with zero contingencies and now you have an out where you never did. You are choosing to no longer abide by the contract, not them. If it was some contract extension form that said "Buyer to now use conventional financing under paragraph blah with the following information....." then maybe. Buts it is all going to come down to the wording. 

If I was them odds are I wouldn't release the EMD (or recommend my client did) either. First it's $500 what are the odds that the guy out in California is going to take it to court, take time off work, pay for a ticket to MI, Get a hotel for a couple nights, rent a car to go to small claims court, where they will make their $500 and a $45 filing fee?

You can pay a lawyer for an hour of time to advise you (Which is the best recommendation) however when all is said and done, odds are you are going to be in the hole.

Just my 2 cents and hope you guys find an acceptable resolution.

Originally posted by @Mike Cumbie :

HI @Curt Frieden,

DISCLAIMER: Not legal advice just the mindless ramblings of some dolt on the internet. For entertainment purposes only. I was born and raised in MI, but have not sold RE there so am unfamiliar with the contracts. 

Without seeing the document everyone signed off none of us will be able to make a determination. If it was a Word doc saying "Buyer is not using conventional loan" then I would be hard pressed to say somehow that was adding a financing contingency to your original contract with zero contingencies and now you have an out where you never did. You are choosing to no longer abide by the contract, not them. If it was some contract extension form that said "Buyer to now use conventional financing under paragraph blah with the following information....." then maybe. Buts it is all going to come down to the wording. 

If I was them odds are I wouldn't release the EMD (or recommend my client did) either. First it's $500 what are the odds that the guy out in California is going to take it to court, take time off work, pay for a ticket to MI, Get a hotel for a couple nights, rent a car to go to small claims court, where they will make their $500 and a $45 filing fee?

You can pay a lawyer for an hour of time to advise you (Which is the best recommendation) however when all is said and done, odds are you are going to be in the hole.

Just my 2 cents and hope you guys find an acceptable resolution.

 Appreciate the reply. 

I've gone ahead and added the parts of the contract that are relevant as I see that's needed for responses.

I would likely hire an attorney to handle this for me and assuming we have a case, the expense would be the seller's so I wouldn't care. I also go to Michigan regularly for a variety of reasons so that's not a major deal. I realize you aren't arguing with me, simply giving perspective which I appreciate :).

And the addendum

So you are going to hire an attorney at $300 an hour, and likely at least a 10 hour retainer to try to get back $500 with a 50% chance of winning? That doesnt seem like the best use of money to me.

Originally posted by @Russell Brazil :

So you are going to hire an attorney at $300 an hour, and likely at least a 10 hour retainer to try to get back $500 with a 50% chance of winning? That doesnt seem like the best use of money to me.

 The losing party pays the others legal and associated fees which is the only reason I’m considering and would be my leverage point to have them release the funds. 

Originally posted by @Curt Frieden :
Originally posted by @Russell Brazil:

So you are going to hire an attorney at $300 an hour, and likely at least a 10 hour retainer to try to get back $500 with a 50% chance of winning? That doesnt seem like the best use of money to me.

 The losing party pays the others legal and associated fees which is the only reason I’m considering and would be my leverage point to have them release the funds. 

 And you are willing to gamble that you are going to win?  Everyone who goes to court is 100% convinced they are right, as Im sure you are convinced you will prevail.  But if you have ever spent time in court, its never that simple. Its a flip of the coin.  And a lawyer will gladly take your retainer, and if you lose youve paid the $500, a few grand for your lawyer minimum and a few grand for the sellers lawyer. Suddenly you are out $10k over a $500 dispute if you lose.

You guys didn't agree to the mortgage terms.

IE: Buyer obtaining a CONVENTIONAL loan for 10% Purchase price over 45 Years at 25% interest.

They may argue that you could get a 40% LTV loan on the place of you put 60% up for 4 Years at 35% Interest and you never tried.

DISCLAIMER: Just armchair quarterbacking and not a legal expert at all. Trying to point out what I see for what it is worth. 

That addendum doesnt have any contingency language in it. 

@Russell Brazil Agreed, it sounds like they are trying to change it from the "Cash" original to the "New Mortgage" on the original. If that's the case there are no parameters agreed upon. One of those hope the judge didn't have a property that someone backed out on or a daughter that lost a dream house to a cash investor.....

Originally posted by @Mike Cumbie :

@Russell Brazil Agreed, it sounds like they are trying to change it from the "Cash" original to the "New Mortgage" on the original. If that's the case there are no parameters agreed upon. One of those hope the judge didn't have a property that someone backed out on or a daughter that lost a dream house to a cash investor.....

Thanks for your input. 

In the addendum it does state that the deal is now "conventional financing". I agree though there are no specifics as far as terms nor contingencies but a conventional mortgage can't be obtained on this property in its current state. My train of thought was since this is an addendum to the original contract, and the original contract states the terms of a conventional financing deal, it would hold the same contingencies.

Clearly people interpret things differently which is why I started this conversation.

Again, thanks for your input, appreciate it!

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