Buying A Home
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What happens with buyer deposit when settlement doesnt happen?
We are supposed to settle on the townhouse that we are selling next Friday. The buyers may be trying to back out, now, I think in breach of our contract, and I'm not sure what happens with their deposit money. The realtor says that both parties have to basically agree on who the money goes to and sign off. But how does that make any sense - why would they sign the money over to us? They'd probably rather have it sit in escrow than go to us even if they are in breach.
Please assume for the purposes of this post that they ARE in breach and the money should go to us. I know that's arguable, but I'm just asking how deposits are disbursed when it's clear who is in breach and who the money should go to. Thanks
Re: What happens with buyer deposit when settlement doesnt happen?
We had teh exact same thing happen to us. 10 days before settlement our buyer backed out for no reason just decided he didn't want to buy a house. Our realtor told us that 4 people have to agree on who gets the money: they buyer, the buyer's broker, the seller, the seller's broker. So in our case even if everyone but the seller agreed it would remain in escrow and the state would deal with it eventually. He said it could take 2 years to iron it out. Our buyer felt bad and signed the release so we were given the money. In our state (Ohio) the laws lean toward the buyer getting it back even if they are at fault. We would have had to fight for it which I was willing to do just out of principle. It really sucks to be in this situation. I can't tell you how many nights of sleep I lost.
Hopefully they just sign it back to you and release you. Also you can't put your house back on the market as active until they release you or the contract expires so that is another sucky part. Good luck!
I assume you're referrring to the earnest money that was deposited in escrow upon making/accepting an offer?
In my experience... If the offer is terminated by the buyers for any reason not supported by the contract (basically, they've just changed their mind about the house, not because of a legitimate problem with the inspection, appraisal, financing, etc) then the money goes to the seller.
If the offer is terminated by the seller for the same reasons specified above (they just decide not to sell, for example - maybe their next house fell through or something) then it should be refunded to the buyers.
If the offer is mutually terminated (appraisal too low and neither party is willing to budge on the price, inspection issues, etc) then it goes into negotiation.
But that's just my experience. I have no idea what the legal-ese in your contract spells out. Check with your realtor to see what your contract says... it's usually in there.
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Where we owned our house, our real estate agent told us that in 25+ years of selling she has never seen the $$ stay with the seller - it's always been returned to the buyers even in contentious contract issues. I guess it's often more work than it's worth to take the potential buyers to court to settle the matter and it's better to spend time and money on getting a new buyer.
She said that of all her real estate friends - only once did a buyer get a small sum from someone who backed out and it was only $1k.
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The seller may be entitiled to it but unfortunately that doesn't mean they will actually get it. In our situation if the buyer hadn't signed the release we were required to wait until after the contract expired which was the date written in the contract as the closing date. It would have meant that we had to stay off the market another three weeks because the contract said he had 45 days to close but in reality we were supposed to close in 30. So if he hadn't signed the release we would have stayed off the market for another 3 weeks until that date had passed. It sucked and I am just grateful my agent was super aggressive with the buyers agent and stayed on top of everything.
My agent would email and call their agent and would say that we were considering suing for completion of the contract (we had no intention of doing this as this ties up your property and you can't sell until the case is settled) and that the buyer was in breech of contract, yada yada, until he signed the release. We went back up within 30 minutes of receiving the release. Good luck!
Hi! I'm a Realtor in CA. Here are a few tidbits about how it happens in CA but please remember, everything varies by state. First and foremost, speak with your Realtor and/or attorney.
If a buyer is in breach and does not close, in many contracts, the initial deposit goes to the sellers. But, that being said, review your contract. The money is held in an escrow account and the escrow company or holder can only release the funds with signed instructions from both sides. 9 times out of 10, the buyers sign the instructions without any problem, they know it is due and they sign.
If buyers dont sign, a court can order the escrow company to release the funds to the sellers side.
Good luck! I'm sorry for the difficulties.
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