How to Protect EMD in this Hypothetical

Question

Is it possible to protect my EMD in this scenario:

Say I put in an offer for house x and it was accepted along with my EMD. (May be wrong on how that works as I haven't done so yet, but I'm assuming this is how it goes)

Okay, now say (although I do have HML's lined up) I can't find a HML to fund the deal and the contract expires. Does this mean since the deal didn't go through because of me that my EMD will be non-refundable? I'm planning on putting in a good EMD to show I'm serious, but also if I lose it, there goes a good amount of my own money and then I'll have to build it up again which may take awhile so I would rather get this right the first time...

Please share your great experience/ideas. Thank you all!

J Scott · Answer

Is this an offer on a bank-owned property, a short sale or a private/retail sale?

If it's on a bank-owned property, you'll want to include a financing contingency in the contract.  This is a specified amount of time during which you can try to get your loan, and if you can't get it, you can back out during that time period.  Once that time period is over (generally 21-30 days), your EM is non-refundable and you'll lose it if you haven't yet backed out.

If it's a short-sale, you can generally including a financing contingency through about 21 days past the date of bank approval, and you can often get away with no EM until you get bank approval, so you're not tying up funds.  This should give you plenty of time to figure out if you can get financing or not.

If it's a retail sale, you can offer less EM to keep your risk low, but just like the cases above, you can include a financing contingency in the contract that will allow you to back out for a certain period of time.

Jon Holdman · Answer

When you make your offer, write it is a financed offer.  You will need to include an approval letter from the lender you plan to use.  The offer will include a financing contingency.  As long as you're careful about dates, if the financing doesn't come through, you'll get your EM back.  If the financing contingency date passes, and you don't inform the seller you haven't been able to get financing, you'll lose the EM.

Bill Gulley · Answer

Absolutely Ryan! Cash talks....

Here is another ploy to avoid any EM.....I got an individual to agree to a great price by having by checkbook and bank statement in the car. I wrote a check for the full price to the seller and the title company and told him to simply endorse the check and take it to the closer. I called the title company and said I'd be in with certified funds along with the contract later for them and they would give my check back, placing good funds in escrow to close in 5 days. Now I did alot of business with the title company  and they would close for me in less time if really needed. Yes, the check was good, just not used, the perception of a cash quick close will motivate a seller..... :)

Ryan M. · Answer

If its a hot property and a offer goes in with a contingency prepare to have it rejected. Typically cash, no contingency (including inspections) is how deep discount deals are bought.

Bill Gulley · Answer

The financing contengency is the most common. I have purchased by putting a property under contract and allowing the seller to continue to accept better offers up to say 10 or 5 days prior to closing and doing so, I make no EM deposit until that closing. This is with individual sellers, not banks. While it sounds like an option, it's not as both have an obligation to buy or sell. The advantage is that the seller usually considereds the place sold, even the realtor may not push the property as hard or continue to advertise, but it is on the MLS, the frame of mind is that it's sold and very seldom have additional or higher offers beem made in that 2/3 week period.

I also agree to pay costs of inspections or title work insulating the seller for expenses up to closing and then credit be with seller's expenses at closing, like the title search.

Real estate brokerages don't really like this until they see it work, the norm is to collect money and place it in escrow for such expenses and damages, like their commissions if possible, but it's can be agreed to. I also explained that I was not going to have 10s of thousands of dollars out in EM deposits for weeks, wouldn't happen and your reputation of closing the deal always helps  too.

Another way is to use an EM Note instead of cash, but if you fail to perform that note is an obligation and is due.

How to Protect EMD in this Hypothetical

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