How to back out and not lose EMD? Help pleeeassee…

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How to back out and not lose EMD? Help pleeeassee…

Account Closed
Delaware/Maryland/New Jersey/Virginia/Pennsylvania · Member since 2019 · 33 posts · 9 votes

Hello everyone! Please help!!! Here is my situation & hopefully you can give me some enlightenment on what to do.

I'm under contract on a property (through FHA loan) in Salem County, NJ.

The asking price is $225K and I offered $235K. Buying ‘as is’, no contingencies. But I asked the listing agent first if there was anything that I NEED TO KNOW before we draw out the contract, hoping that I could trust him. He said it’s a flip, nobody lived there. There are no disclosures. So, I said, okay, I trust you. (It’s legal in NJ without seller disclosures). But isn’t that…

“Real estate agents must make a “reasonable effort to ascertain all material information concerning the physical condition of every property for which he or she accepts agency” and disclose this “to their client or principal and when appropriate to any other party to a transaction.” ??? 

So anyhow, we opened escrow, put my $3K deposit last week. We had an inspection today, and came to find out that there are major termite and mold issues in the house. It looked nice in the inside but of course underneath, I did not see what was the problem. On top of other issues that was from the inspection report.

I was in a hurry to get this property and hoping to close by the 12/30, as my parents are coming from the Philippines 🇵🇭 My mother just got diagnosed of Parkinsons and I am just trying to help them out.

My question is: is there a way I can get out of this contract and get my EMD back?

I’m so sorry for this long message, but I don’t know what to do. Thank you for your time. 😔

If you are a real estate attorney in NJ please let me know. Thank you so much. 

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Jessica Tsao
Lender · CA · Member since 2019 · 82 posts · 46 votes
4y

FHA loans require an appraisal and the appraiser is required to look for termites and will not approve the loan with termites. A professional inspection is required to determine termites and must be remedied to approve a loan with FHA. did you waive loan contingency? Did you waive appraisal contingency? If you waived all the contingencies? If all else fails, I would talk to your agent, FYI online reviews is really big now days.. . Good Luck

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

    It of course depends on what your contract states, which none of us are privy to. But if you are as is, no contingencies as you state, sounds like you are sol. 

    Did you actually do a mold test? Also, what exactly is major termite damage? Major termite damage would be behind the walls where you cant actually see it.

    Also, use a buyers agent the next go around.

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  • Jessica Tsao
    Lender · CA · Member since 2019 · 82 posts · 46 votes
    4y

    FHA loans require an appraisal and the appraiser is required to look for termites and will not approve the loan with termites. A professional inspection is required to determine termites and must be remedied to approve a loan with FHA. did you waive loan contingency? Did you waive appraisal contingency? If you waived all the contingencies? If all else fails, I would talk to your agent, FYI online reviews is really big now days.. . Good Luck

    9Reply
  • John Teachout
    Rental Property Investor · Concord, GA · Member since 2015 · 3k+ posts · 3k+ votes
    4y

    "As is, no contingencies". Did you not understand what that meant when you placed the offer?

    8Reply
  • Alan Lacey
    Lender · Grand Rapids, MI · Member since 2019 · 175 posts · 82 votes
    4y

    A fha loan requires a fha/va loan addendum to purchase contract. https://www.americansecure.com... It must be executed to be able to obtain FHA financing and if fha financing accepted it just comes with territory. Every agent should be familiar with form and now that there is no way to waive appraisal contingency on a fha deal. However if home appraises despite issues found in inspection this would not be of help.

    2Reply
  • Harry Arnold
    Flipper/Rehabber · Hazlet, NJ · Member since 2017 · 61 posts · 110 votes
    4y

    Sounds fishy. You thought your realtor was responsible for finding out about mold and termites? You went in with an FHA loan and there's not mandatory contingencies that could easily get you out of that contract? You didn't run this by the attorney that you're using? Here's my take - you got cold feet and want your deposit back. For buyers good news - in NJ you can back out for just about any reason; cold feet, psychic reading results, or a bad hair day - and get your money back.

    4Reply
  • Account Closed
    OP
    Delaware/Maryland/New Jersey/Virginia/Pennsylvania · Member since 2019 · 33 posts · 9 votes
    4y

    @Harry Arnold lol it’s not being cold feet. I want a safe living environment for my parents. But thank yoi for the input!

    0Reply
  • Account Closed
    OP
    Delaware/Maryland/New Jersey/Virginia/Pennsylvania · Member since 2019 · 33 posts · 9 votes
    4y

    @Russell Brazil thank you, yes the termite damage were behind the walls. I was at the inspection with the inspector yesterday.

    0Reply
  • Account Closed
    OP
    Delaware/Maryland/New Jersey/Virginia/Pennsylvania · Member since 2019 · 33 posts · 9 votes
    4y

    @Jessica Tsao thank you! ☺️

    0Reply
  • Joshua GorskyPro Member
    Professional · Freehold, NJ · Member since 2016 · 33 posts · 16 votes
    4y

    @Revekah Cosby

    Like others have stated, it really depends on the terms of your specific contract. If you used a Realtor Form, there are a lot of contingencies already included that would have had to have been specifically negotiated out. Additionally, if you were planning on getting an FHA loan, it would be strange that you also waived the financing contingency. The answer to your question is in the details of your paperwork.

    1Reply
  • Michael Noto
    Real Estate Agent · Southington, CT · Member since 2008 · 5k+ posts · 3k+ votes
    4y

    Next time use a buyers agent because it would have helped in this situation and in most transactions in general it is a major plus to have someone with as fiduciary duty to you. What you are hoping now is that the listing agent goes against what is in the contract and asks his client to give you the deposit back. Could go a number of ways depending on the seller. Did you have a financing contingency?

    2Reply
  • Account Closed
    OP
    Delaware/Maryland/New Jersey/Virginia/Pennsylvania · Member since 2019 · 33 posts · 9 votes
    4y

    @Michael Noto The seller is the listing agent. Thank you for your input.

    0Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    4y
    Originally posted by @Account Closed:

    @Russell Brazil thank you, yes the termite damage were behind the walls. I was at the inspection with the inspector yesterday.

     You cant see behind walls, so how wad an inspector able to tell you there is damage behind the walls? X-rays? 🤔

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  • Mark S.
    Real Estate Investor · Saint Paul, MN · Member since 2017 · 543 posts · 474 votes
    4y

    @Revekah Cosby In the future, if you do

    cancel this PA, I suggest being very careful when purchasing a flip. There are flippers who simply cover up issues rather than fix them in order to make a quick buck. Also be sure all necessary permits were pulled and closed.

    2Reply
  • Harry Arnold
    Flipper/Rehabber · Hazlet, NJ · Member since 2017 · 61 posts · 110 votes
    4y

    I bet there’s another side to this story. 

    3Reply
  • Account Closed
    OP
    Delaware/Maryland/New Jersey/Virginia/Pennsylvania · Member since 2019 · 33 posts · 9 votes
    4y

    @Russell Brazil would like to see the inspection report?

    0Reply
  • Account Closed
    OP
    Delaware/Maryland/New Jersey/Virginia/Pennsylvania · Member since 2019 · 33 posts · 9 votes
    4y

    @Mark S. Thank you so much! It did not pass the township codes also.

    0Reply
  • Heather Glasgow
    Member since 2021 · 2 posts · 1 vote
    4y

    Hello, 

    First things, first, I'm sorry to hear about your mothers recent diagnosis. With everything else going on it sounds like you are under a tremendous amount of stress. I am not a real estate attorney in New Jersey. I was a licensed real estate agent in Arkansas and Oklahoma until I stepped back to take care of my 4 boys when covid shut schools down. I've been giving serious consideration to getting back into Oklahoma but that's a different story. That's enough about me. I'm going to refer back to the questions you asked in your post but I have to warn you that you may not like my answers. 

    This could wind up  being an expensive but valuable lesson for you in the long run. Let it be a lesson though and not the end of the road for you because we ALL make mistakes and based on what you said it sounds like you make a few rookie mistakes. The result is that you are in a position where you can ask for your money back BUT the seller does not have to give anything back because they did nothing wrong in the eyes contract law. In my state the reason deposits are held in escrow accounts is so a neutral third party has the money in the event of a conflict like you are describing.

    Your first mistake was to get into a hurry: I could be completely wrong but it sounds like you made a hasty decision based on emotion and not on what may have been best for your situation. This happens to more people than it should and it causes heartache. 

    Another mistake that most buyers don't realize they are making is to purchase through the listing agent. I don't know about NJ but in my area that disclosure has to be made to buyers in writing. Someone above mentioned hiring a buyers agent. That was solid advice because if you have your own agent then you have someone looking out for your interests. I would suggest taking it a step further and hiring an agent from a completely different brokerage from the seller. This is because the listing contract is with the brokerage and not the agent so if you use two agents from the same brokerage the seller is still the one whose interests are being protected. I hope that made sense. 

    As for the sellers disclosure and the listing agents duty to know and tell: The brokerage has an obligation to be honest with you about what they KNOW or should reasonably know about the property. Seller disclosures are super important because without them the agent doesn't know. They can't be expected to know everything either so moving forward ask for a disclosure. A motivated seller won't mind filling one out. 

    As for what the agent should have known: You said it yourself that everything looked good when you went in and that the damage was spotted on the underside during inspection. If the damage you are describing was found during the inspection then it sounds like it was either not obvious or that it was not that significant. If that's the case then the agent cannot be expected to see it. I would also take another look at the inspection report. I say this because sometime inspectors can be deal killers by saying a problem exists without putting it in perspective. I would suggest calling a mold expert and a termite expert to assess the situation further because I don't know about NJ but in my area the home inspection is general and not specific. Translation: home inspectors are required to tell you a potential problem exists but not allowed to tell the extent unless they are certified to go into more detail. So maybe (hopefully) the inspector just did a poor job putting the issues they found into perspective and the problems have been remedied so the house is a good buy. That would be great wouldn't it?

    Now to the bad news: By choosing to buy the property as is with no contingencies you accepted the house warts and all which means that according to your contract you are on the hook for the purchase. The seller can take you to court to force the purchase if they choose to. If they are a flipper they probably won't because they can keep the EMD and let you walk away. It's a win for them and an expensive lesson for you.

    I hope this helped. Good luck. I hope everything works out for your parents living arrangements. :)

    0Reply
  • Account Closed
    OP
    Delaware/Maryland/New Jersey/Virginia/Pennsylvania · Member since 2019 · 33 posts · 9 votes
    4y

    @Harry Arnold would you like to listen to the other side of this story? That would be awesome so I can also learn from that story. I can send you the listing agent’s name and number and if you would like to speak with him so you can also share that input. Thank you so much!

    0Reply
  • Account Closed
    OP
    Delaware/Maryland/New Jersey/Virginia/Pennsylvania · Member since 2019 · 33 posts · 9 votes
    4y

    @Heather Glasgow thank you so much! Yes it is a learning experience and I would be more careful next time! Thank you for taking your time responding to this.

    0Reply
  • Matthew Olszak
    Real Estate Broker · Chicago, IL · Member since 2015 · 1k+ posts · 2k+ votes
    4y

    @Account Closed Can you post the relevant sections of your contract that discuss contingencies and emd? As-Is means different things across the country - in our board contract in Chicago, as-is simply means you can't ask for repairs, but you can still outright cancel.

    I'd also like to see the termite section of the report. How was the inspector able to see the wood behind the walls without removing either siding or drywall? Not saying this is the case, but I've seen countless times where home inspectors go well outside of their knowledge zone and make fear-mongering statements (ie especially for structural "issues" and roof lifespan).

    5Reply
  • JD MartinBusiness Member
    Moderator
    Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
    4y
    Originally posted by @Account Closed:

    Hello everyone! Please help!!! Here is my situation & hopefully you can give me some enlightenment on what to do.

    I'm under contract on a property (through FHA loan) in Salem County, NJ.

    The asking price is $225K and I offered $235K. Buying ‘as is’, no contingencies. But I asked the listing agent first if there was anything that I NEED TO KNOW before we draw out the contract, hoping that I could trust him. He said it’s a flip, nobody lived there. There are no disclosures. So, I said, okay, I trust you. (It’s legal in NJ without seller disclosures). But isn’t that…

    “Real estate agents must make a “reasonable effort to ascertain all material information concerning the physical condition of every property for which he or she accepts agency” and disclose this “to their client or principal and when appropriate to any other party to a transaction.” ??? 

    So anyhow, we opened escrow, put my $3K deposit last week. We had an inspection today, and came to find out that there are major termite and mold issues in the house. It looked nice in the inside but of course underneath, I did not see what was the problem. On top of other issues that was from the inspection report.

    I was in a hurry to get this property and hoping to close by the 12/30, as my parents are coming from the Philippines 🇵🇭 My mother just got diagnosed of Parkinsons and I am just trying to help them out.

    My question is: is there a way I can get out of this contract and get my EMD back?

    I’m so sorry for this long message, but I don’t know what to do. Thank you for your time. 😔

    If you are a real estate attorney in NJ please let me know. Thank you so much. 

    My advice would be to either accept the EMD loss or go forward with the contract. You put in a contract without contingencies. Now you are asking to be able to waive the contract because of contingencies (unseen mold/termites). That's not how it works.

    You would have to be able to prove that the seller and the agent knew that there was mold and termite damage. Since you said it was "underneath", which I take to mean in the crawlspace, good luck with that. A seller is not required to know the material condition of a property, only to disclose the conditions that S/he know to be true. If the seller or the agent, or an inspector they had, went into the crawlspace and found mold and termite damage, they would be breaking the law not disclosing those conditions. But if they never went into the crawlspace, they wouldn't know, and therefore the burden of inspection is upon the buyer. You signed a contract that said, essentially, "I don't care what the material condition of this property is other than what you've disclosed, I'm willing to buy it anyway".

    You will likely spend just as much on a real estate attorney to try to recover your EMD. NJ probably has some type of arbitration process that you may be able to pursue, but really I believe you're just chasing rainbows here. You wanted a competitive advantage so you waived your inspection contingency. That's why you shouldn't waive an inspection contingency, or be prepared to live with the consequences if you do.

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  • Harry Arnold
    Flipper/Rehabber · Hazlet, NJ · Member since 2017 · 61 posts · 110 votes
    4y

    Well written!

    0Reply
  • John Brodeur
    Investor · Philadelphia Metro · Member since 2019 · 44 posts · 75 votes
    4y

    @Matthew Olszak, I have seen the same generic statements / home inspection reports. Things like "roof failed - past useful life expectancy should replace". The buyers often freak out (as I did the very first time). Then you call a licensed roofer who examines and confirms that while the roof is older than xx years old there are no issues, no active leaks, and should be fine for 5 to 10 years more depending on weather/conditions. This is very different than the roof failed and needs to be replaced right away. 

    In PA most of the home inspection reports I've seen state the generic term "have a licensed (insert professional roofer, plumber, electrician etc. inspect)."

    I know that today's market is hot, and there are is a lot of competition between buyers, but I think this trend of waiving inspection contingencies for first time homebuyers, or primary residence buyers really puts people in tough spots. Unless you are comfortable with taking on that risk and have the cash on hand for fixes / repairs of potentially larger issues it is not a good idea IMO. 

    On the other hand if you are an experienced investor / have the cash on hand to handle major repairs you can certainly waive inspections on certain properties (and often will need to in order to make an offer that the seller will accept.) 

    3Reply
  • John Brodeur
    Investor · Philadelphia Metro · Member since 2019 · 44 posts · 75 votes
    4y

    @Account Closed, as for the specific questions about if you can back out and what would happen with the Earnest Money, I will echo the prior commenters that you need to carefully review the Agreement of Sale, and determine what the specific language and timing is related to any contingencies at all, and what happens to earnest money. 

    Every state has different laws, and each contract has different language and timing built in so people on here won't be able to give you specific guidance in your specific situation without reviewing the language and knowing the laws in NJ. 

    You mentioned this was an FHA loan, which means you are purchasing with an FHA mortgage and all the FHA inspection and FHA appraisal that goes with it. I would be very surprised if your AOS does not outline something related to a financing / mortgage contingency because you were going through an FHA. In addition the contract would typically have to outline that you would be fully responsible for any and all requirements related to the FHA. There may be ways in your contract where you can legally back out and get your earnest money back, but you need to review the details to determine that.

    2Reply
  • Matt Greer
    Real Estate Agent · Mesa, AZ · Member since 2017 · 230 posts · 169 votes
    4y

    @Account Closed If the home has termites and the appraiser sees it it won't pass the appraisal. If it doesn't pass the appraisal than the FHA Amendatory Clause gets triggered. The FHA Amendatory Clause is federal and allows a buyer to back out if there are issues with the appraisal and get their deposit back. It would also render certain parts of the contract void and unenforceable.

    I'd ask your agent to do a quick consult with the broker of his firm and then look into a quick consult with an attorney if the broker can't find a way out. It sounds pretty easy in your case, but I don't have all the facts so I can't say for sure. 

    A ton of people waive contingencies and then use loan products that literally don't allow that and it cracks me up. It's basic contract law.

    2Reply
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