Profile picture for dhippert

Seller refusing to return earnest money

I had an accepted offer on a house that ended up appraising for almost 30K less than the offer.  The contract language specifically states that the earnest money will be returned without penalty if the house doesn't appraise.

The seller has accused the appraiser of being somehow crooked and in my pocket, so he is refusing to sign the cancellation of escrow.  He has offered us a bunch of shady under the table deals to self finance the difference (as if I would buy a property right now for that much more than it's worth) and has begun legal action against the appraiser.

It has been six weeks since the appraisal and since we first sent the escrow cancellation and I still don't have my money back.  The listing agent is now saying that they have no responsibility because he has taken the house off the market so they are no longer listing it for him.

If anyone has faced something like this before, or if anyone is a real estate attorney and can give me some advice on what to do about it, I would appreciate it.
  • July 03 2009 - Sparks
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Answers (15)

In consideration of what you have told me...

If you have an agent, go to your agent's broker. If not, go to the seller's broker. Discuss the problem, and tell them they are breaking the law, they cannot leave mid escrow and simply wash their hands of all liablity. The broker put the money in an escrow acct, and it's still there. Also, you can go to the escrow broker and get them involved.

We had a seller try to refuse to return money, and the seller was told by all parties, brokers, and agents that they didn't have a choice. Your house didn't appraise, period. The sellers are in breach of contract by not returning your money.

We also, 20 years ago, had a house we were buying that didn't appraise, and we just kept resubmitting offers at the appraisal price (no escrow was ever opened until they accepted, so diff than your problem). It took 6 mos for the sellers to accept it, after the house had been on the market for 1 1/2 yrs! lol
  • July 03 2009
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Profile picture for wetdawgs
The listing agent cannot back out of responsibility at this point. The agent must carry through activity initiated when they did have the listing.  I would go to the broker of the listing agent, as well are report the agent to the state board.

  • July 03 2009
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Profile picture for Mr Caveat

"has begun legal actions against the appraiser?" its a pity how some lawyers will take just about any case, even if they know they dont have a chance... i like debts second idea as much as the first, take 30-50k off the asking price and submit the new offer. i doubt they will accept a discount below the 30k appraisal mark, but you and i both know that next year market prices will be further depressed than they are now.
  • July 03 2009
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Profile picture for reba_haas
I'm not an attorney but will give some scenarios below that might apply.  If you really want an attorney to weigh in, you should consider actually paying them for specific advice and not free advice on the internet because free advice in a forum like this doesn't necessarily constitute a full review of the facts of your situation.

Depending on the state where you live the answer may be different. If the money was being held by a Closing Agent and not the broker's office, then they (escrow) are held to different rules than brokers.  If there is a dispute about earnest money in WA State, then EM becomes "interpled" and escrow won't release the money till the dispute is cleared. This is a bit of a process where the parties have to submit their information about why the contract failed and to prove why they have the right to the funds.

If the seller is taking action against the appraiser, then that should be a separate issue from the earnest money. The brokers should definitely be involved. Plus, if that listing was cancelled then there is even more of a duty for the listing broker to get that EM off the books because they are still obligated to the transaction. If that seller has cancelled his listing completely, then it should weigh in your favor that the funds should be released.My personal advice, depending on how much money you've got at stake here with your EM, go pay an attorney to review the situation, perhaps write a demand letter to the seller, and contact all parties involved (brokers, agents, escrow and seller) to get this cleared up.
  • July 03 2009
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I agree with Reba and NT... the seller is suing the appraiser, not you. This has nothing to do with YOUR contract with the seller. The seller is in breach of contract for refusing to return your money. You had a right to cancel the contract, you took the right, and you must get your money back with the stated time limit in your contract. In Ca, it's usually 72 hrs. To tie up YOUR money, there are 'breach of contract' charges stated in the contract. Read them. Here they are typically 100/DAY. Yes, per day. That's 4,200 for 6 wks... lol  Now the typical contract did NOT have that written in when I bought, but I do know that I made sure that we could collect, not just them, if a breach of contract happened. lol  ... an idea for your next contract if it's not there.

Furthermore, if you had no agent, then their agent was acting as yours also, and would have recieved all the 'agent money', not just the typical 1/2. Therefore... you ready?... the seller's agent is legally responsible to protect your interests... equally.

This is Calif law. Azrob would be able to tell you if it's similar in Arizona... and no, I'm not a lawyer or agent. No matter what, this is a breach of contract, and you can sue for money, but probably won't get more than the attny fees and your money back in the end. Knocking  on those brokers doors will probably be cheaper/easier!
  • July 03 2009
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There still seems to be some holes in your story that need to be filled... 

1)  Do you have a financing contingency?  If so doesn't this contingency clearly outline how you can cancel the contract should property fail to appraise out and you cannot receive the agreed upon financing to purchase this property?
2)  If you do not have a financing contingency and are paying all cash did you have any clause that stated property had to appraise out?
3)  What is escrow's position?  Have you given written notice of your cancellation and have you referenced in that written statement the section that allows you to cancel? 

If Seller is challenging your right to cancel then you might be in for a bit of a fight.
  • July 03 2009
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Profile picture for space_acer
You need to contact a lawyer the first thing monday morning.
You need to sue the seller ASAP!
  • July 04 2009
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Profile picture for Mr Caveat
ps even if the appraiser is found wrong (and i highly doubt this... like i think the odds are better in horse racing) but whatever its their money... even if they win and the judge rules that the appraiser unfairly valued the property (and appraisers are insured for this) they still cant keep your earnest money or force you to continue with the sale. once the transaction is dissolved they have no right to that money. none. they can sue the appraiser for damages that amount to the losses they take because of the appraisal, but as i said, they really, really wont win.

PSS i like the way that debts agrees with me agreeing with him, so great to have the support^_)^
  • July 04 2009
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You need to talk to a Lawyer, but it sounds like there has too be more to the story.

A disagreement with an Appraiser and Escrow not cancelling escrow seem to be two different issues.

Assuming this is just a standard transaction the appraiser works for the lender and paid by the Buyer.  If property doesn't appraise out that is something that is weighted by the Underwriter to decide if they will lend on the Property.  If there is a financing contingency and the Bank will not lend on the Property the contract should be pretty clear on what the next step would be.

If there is no financing contingency then the Seller could be correct in there actions in trying to get all or a portion of Earnest Money.

It really should be spelled out in the Contract and something that a Lawyer could sort out fairly easily.
  • July 04 2009
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lol NT... First, I'm a girl. Second, You stated a conclusion to what I was saying, when I only told a past story which only implied the idea. I like how you said it much clearer, that's why I agreed with you. roflmao! Thanks for the smile NT.
  • July 05 2009
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The following Nevada Revised Statute addresses this problem:

NRS 645A.175  Duty to execute documents necessary to release money deposited in escrow; exception for good faith disputes; recovery of damages for failure to execute; award of attorney's fees.

1. Except as otherwise provided in subsection 2 or in the escrow agreement between the parties and the holder of the escrow, upon the close of an escrow for the sale of real property or on the date the escrow is scheduled to close if it has not closed, each party shall execute the documents necessary to release the money deposited in the escrow.

2. A party may refuse to execute a document necessary to release the money deposited in the escrow only if a good faith dispute exists concerning that money.

3. Except as otherwise provided in NRS 645.8701 to 645.8811, inclusive, if a party refuses to execute a document necessary to release the money deposited in the escrow within 30 days after the holder of the escrow makes a written request for the execution, the party injured by the failure of the other party to execute the document may collect from that party:

a. Actual damages of not less than $100 nor more than 1 percent of the purchase price of the real property for which the money was deposited in the escrow, whichever is greater;
b. The money deposited in the escrow which was not held to resolve a good faith dispute concerning the sale of the property; and
c. A reasonable attorney's fee.

  • September 16 2009
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Profile picture for lynrosect
Please contact all brokers, not agents but brokers involved.  Send a certified return receipt letter to the managing selling broker (whoever manages the office inwhich they listed) with the contract and the terms in the contract highlighted which state you are entitled to a return of your escrow deposit if the property does not appraise.  If that doesn't work, contact a real estate attorney in your area.  Goto the same attorney you were going to use for the closing.  The initial consultation is usually free.  Due to not having all of the facts (the buying contract must be reviewed) and misinformation provided, online forums are not the place to seek legal advice.

I used the certified letter procedure years ago to get a deposit returned.  Since then I have become an attorney, my methods as a novice worked for me in 2000.  Hopefully, they will work for you now.  If not, it is always within your best interest to spend $500 on an informed attorney than to loose your entire deposit.
  • September 17 2009
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   I am in a similar situation at this moment. My offer of $540,000 was accepted and I deposited 3% of the selling price to escrow. There were termites on both homes on 17,000 sq ft lot, leaky roof, and repairs.  I got headaches going back and forth going through my agent to get credit for some of the repairs even though I offer to pick up 90% of the costs.

   I had a few contingencies for the purchase, inspection (which they failed because of the repairs), termites (which they failed), and appraisal. I was willing to bypass the repairs and termites issues, but when the appraisal came back it was only worth $445,000, almost $100,000 less, so I had to offer the lower price. 


   If it was like $30,000 difference I would have taken it, but I had to cancel escrow. Now I am just waiting for my deposit. One thing that I did different that the lister is that I have an attorney that I went back and forth when I started escrow. If they try to keep my deposit, my lawyer would be able to take them to court and it shouldn't be hard to win since they failed all 3 contingencies. I would put a lien on the place if we get a judgement, which would make it harder for the seller to sell.

    My advise is to get a good lawyer and to have a good agent. Even though my agent is my older sister's best friend for about 20 years, I now have a better agent, myself. I just passed my broker exam and can do everything that my agent can do and more. Nobody would care more about your transaction that yourself.  But be cautious when you have a license because as a buyer, you will always have to make it known to the other party that you are licensed or else you would be in trouble.

    Good luck and hope everything works well. Please post any outcome.
     
  • September 20 2009
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Small Claims Court ASAP. 
  • April 04 2014
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Profile picture for pete3764
Small Claims Court is your only recourse.
  • December 22 2014
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