I posted something about this recently in another subreddit, but as the situation continues to escalate, I'm wondering if anyone can provide additional insight.
My partner and I recently had a loan denied just over a week before closing on a home we had been trying to purchase. The loan was denied through no fault of our own—the lender has fully admitted fault—as the property exceeded the loan program's acreage restriction, and there was no way around it. Our loan officer should have caught this much sooner in the process. We never would have wasted anyone's (including our own) time, money, and energy on this home had our loan officer done their job adequately. We had a financial contingency in the contract and we met all deadlines and jumped through every hoop presented to us.
The sellers, who have been abusive to their agent, who in turn had been verbally abusive to our agent throughout the process, are, of course, not being cooperative in mutually releasing our $5,000 earnest money deposit. We've been told they're "upset" that we didn't just try to go through another lender when our loan was denied, and believe that that means we did not act in good faith. I am certain this is an attempt to move the contractual goal post. We did talk to another lender when the loan fell through, who told us that the best rate we would get would be through the program that denied the loan. We could not afford anything more than that rate got us for monthly payments—the other lender literally told us to find another house. So not only do we have a month's worth of constant back-and-forth emails and records that show we met every deadline and were cooperative through every step of the process, but we also did still exhaust every avenue we possibly could to try to get this to work.
Our agent (who has been wonderful) has been working diligently to try to find a resolution, but there's a lot I don't understand about the process. My partner and I are drafting our questions for her and hopefully will get clarification, but in the meantime… Does anyone know what the next best steps are?
We are located in MD, and while I understand that both parties have to mutually consent to the EMD release, I also thought that if there was a financial contingency, the seller had 10 days to respond/call for mediation, and if not, we could reach out to escrow and have the funds released to us within 30 days (unless the seller, again, attempts for mediation). The seller has not formally responded in any capacity, they are just being uncooperative and will not sign anything. We've been told they've "reached out to their attorney." It's been 14 days since they received the release form, no formal response whatsoever. Would there be a reason we couldn't/wouldn't just be sending a formal demand letter to escrow at this stage? Is this something our agent would handle for us? Do we contact an attorney? File a lis pendens to try to light a fire under them? Contact…someone else? Lol.
The seller also relisted their property without this being resolved, but has since taken down the MLS listing. This might be a result of pressure from our realtor, who has told us that it is not ethical to relist under these circumstances.
Lastly, the seller doesn't keep the earnest money deposit themselves without going through the appropriate legal channels, right? Or am I misunderstanding how this works? I just don't really understand what the prerogative is here for the sellers, besides asserting their own misery. I get that they might feel like the rug was pulled out from under them—but it was pulled out from us, too, and, as we have absolutely verifiably acted in good faith, I don't get how they even have a leg to stand on.
Seller refusing to release EMD or cooperate. What can we do?
byu/yardkale inRealEstate
Posted by yardkale
14 Comments
Are the sellers not releasing it or the title company?
Talk with the agent you are working with.. most sales paperwork usually says something about arbitration. Alternatively, small claims court. Another option would be to have your agents broker contact the agent’s broker over at the real estate office for the seller to attempt to get the money out of them..
I’m sure the purchase offer was contingent upon financing which is fairly typical.
Time to consult a real estate attorney
If you had a financing contingency, then I’d expect your agent and their broker to get involved.
Title companies won’t play judge or jury and decide who should get the money. But what I see happening is that if the seller and buyers brokers (above the agents) agree who should get it, the title companies will go along with that. So that might be the path of least resistance – pressure your agent and/or their broker to get your money back. You followed THEIR contract. There is not a gray area here (if I’m interpreting the facts correctly). Usually after a few days of them telling the seller they have no claim to the money, and the seller calms down, then they might even sign the release. Some people are just stubborn jerks though.
If the brokers can’t get it done then you probably need to do arbitration.
Do not file a lis pendens without talking to a local real estate attorney. I think that’s overkill in a situation like this, it will just cost you money and escalate with the seller. If you are successful in your arbitration and get a judgement then file a lien on the property. In most cases it’s unlikely that they’ll sell it before you could do that.
You’re starting to get in loose attorney territory. Different states have different rules on how disputed EMD is handled, so you’ll want to review what the rule is for MD.
In my state, if it’s not mutually released, it just stays in escrow. There’s one final attempt to “settle things up” and if both parties still disagree then it gets released to the state.
I would imagine lis pendens would be the correct move for you, but this is one of those conversations you hope your agent can have with the other side to see if you can get it solved before moving into this territory.
Getting with an attorney to scrape back 5k is going to be a bummer for you, because it will most likely cost close to that to appropriately do it through legal means.
Your agent should be able to advise you as to your next steps in your state but it is likely obtaining an attorney. Before that happens, I would have your agent reach back out to the listing agent this week and ask what the holdup is in signing the mutual release. In my state, there is a contractual penalty if a seller does not sign the mutual release without cause.
Generally, your earnest money deposit is held by escrow and is not released to either until both parties agree, so your money is “safe” while you work through this. The sellers probably just needed some time to lick their wounds, and hopefully their agent is advising them of their contract obligations. But, if the seller decides to be difficult, neither your agent or the listing agent can force them to sign the mutual release, and you will have to take further legal action through an attorney. In the meantime, the money just sits in limbo.
What did your financing contingency require? Ours specified that we’d obtain a loan under 30 year terms with an interest rate no greater than X. Therefore ANY loan we could qualify for that met those terms or better we were required to obtain or it would be a breach of the purchase agreement. Just because you had a better rate with the preferred program doesn’t mean you couldn’t qualify for a higher rate but still meet the terms of your financing contingency.
Now if you didn’t qualify for any other lender or another loan, then that’s completely different and they should be required to return your EMD. This may vary by state though.
To clarify – did you provide notice exercising the financing contingency prior to the contract deadline to do so?
Was your financing contingency general (whether or not the financing available was acceptable to you in your sole discretion) or specific (e.g. no greater than X% rate)?
Title releases EMD not the seller.
The moment your loan was denied, you send that denial notice to TITLE and they will release EMD because failure to quality is a reason to get your money back.
Stop talking to the seller.
Call title today and demand they release. If the seller doesn’t respond after a certain period, they will do it.
You’ll need to go back to your contract. Your agent should be able to explain to you what your next steps are. If they cannot then speak to the broker. That’s what they are there for. In some states, the buyer is we required to fully qualify for their financing and remove that contingency. In other states, the financing stays in place until the end (I’ve practiced real estate in three different states, and the rules were different each one)
You typically have to go to mediation and arbitration and those may or may not be binding. Again, your agent/broker should be able to assist you. Or you can speak to your closing attorney.
I’ve had this happen and I sent a final notice to the agent stating there will be no further contact and they have 3 days to give the money back or I will be suing them and their brokerage along with damages and missed opportunity. They gave the money back the next day.
This depends on the contract terms for the financing contingency and the timing as it relates to that contingency and the contract. It also depends on what the contract says about the release of the escrow and any dispute resolution process provided for in the contract.
It would probably help to get a consultation with a real estate lawyer ASAP. Bring your contract, and legal notices or communications with the buyer, and any documents from your mortgage broker/company denying you the mortgage.
File a lawsuit for the money. Then file a Lis Pendens against the property so they won’t be able to sell it. They will become cooperative.
What was in the contract you signed? Did it have a mortgage contingency? Who is holding the escrow? They could be in a lot of trouble if they repudiate the contract. If you did not have a mortgage contingency, then you might be SOL.