Assignment of Contract Earnest Money

3 Replies

I have been helping my mom look for properties since she is retired. She has a self directed IRA in which all funds have to come out for purchasing properties. She found a property and put 2000k for earnest money on the wholesaler Assignment of Contract. She cannot get funding through traditional financing and hard money because Fannie does not want to see IRA owing the house. My mom told the wholesaler the check she is writing is not valid because the monies have to come out of her IRA account. She could not get the funding so she cancelled the check for 2000k, now the wholesaler says Title company will persue legal action for breach of contract. My questions is the assignment contract is not a Trec form and does this contract hold any merits? The assignment contract does say buyer hereby agrees to pay original buyer non refundable earnest money in the amount of 2000.00. Earnest money to be credited towards agreed upon assignment fee. Is this really enforceable since this is not a true Trec contract or real estate agent was not involved?

Originally posted by @Bil Casimir :

I have been helping my mom look for properties since she is retired. She has a self directed IRA in which all funds have to come out for purchasing properties. She found a property and put 2000k for earnest money on the wholesaler Assignment of Contract. She cannot get funding through traditional financing and hard money because Fannie does not want to see IRA owing the house. My mom told the wholesaler the check she is writing is not valid because the monies have to come out of her IRA account. She could not get the funding so she cancelled the check for 2000k, now the wholesaler says Title company will persue legal action for breach of contract. My questions is the assignment contract is not a Trec form and does this contract hold any merits? The assignment contract does say buyer hereby agrees to pay original buyer non refundable earnest money in the amount of 2000.00. Earnest money to be credited towards agreed upon assignment fee. Is this really enforceable since this is not a true Trec contract or real estate agent was not involved?

 Without seeing what she signed, there is no way to be sure if she in on the hook for the earnest money. What I will say is that, thankfully, she avoided a prohibited transaction which could have resulted in much worse than a $2000 loss. 

Personally, I would find it very unlikely that they would pursue legal action to recover $2000.00. In my experience, companies don't even consider legal action for less than $5000, as this is generally the amount at which the benefits of legal action begin to possibly outweigh costs. Even the most ruthless debt collectors wouldn't sue for $2000.00, so in that respect I think she is safe. The first thing you want to do is stop taking anything the wholesaler says seriously. If you want real answers, your best option is to call the title company and discuss it with them. But the wholesaler is almost certainly fabricating some facts in an effort to collect his paycheck. 

Adam

@Bil Casimir

The title company is not a party to the contract and as such, they can't pursue an action for breach of contract. They can take issue over the check (and any fees the the T.C. incurred for the check cancellation), but I doubt the title company will make a stink over it. However, your mom "may" have breached her obligations under the assignment agreement so she might want to seek legal counsel to get this resolved sooner rather than later. 

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