Loans Answers

Who gets earnest money

Question: I am selling a house in South Florida to a woman who is a licensed mortgage broker/real estate agent. We had a contract which stated contigent on her getting a conventional 30yr fixed mortage at 95%. She had 30 days to qualify. She also put $10,000.00 in an escrow account. We were sent a pre qualifaction letter and showed that she had sufficient credit and funds. A week before the closing which was the 30th day, she faxed my agent a denial of funds letter, which stated she was denied the mortgage due to insufficient funds and bad credit and will opt out of the contract. My agent has followed up during this 30 day period and was told that everything was moving along. Then this happened. The title company had asked her how this could have happened? She claimed she did not know her status of credit. After explaining to her the possibility of her loosing the earnest money to me, she later explained that she was only approved for a 90% loan and was short $15,000.00. We were told that she still wanted to purchase the house only if I would consider to hold a note for this amount. We verbally agreed to terms and had our attorney draw up the paper work prior to closing. On the closing day, she opted to back out based on her original statement of insufficient funds and credit. I am pretty confident that she ethically is wrong here and I will be handed the earnest money, however can I sue her in a civil manner? Your thoughts?

Answer: My bet is, you will not be just handed the deposit. If you read your listing agreement and the sales contract closely, you will discover some interesting clauses. Based upon the norm, I’m pretty certain you will find that the escrow agent has the right to deposit the funds with the local court and remove themselves from the argument. It will then be up to you to prove to the court that you are legally entitled to those funds. Keep in mind that if you win the legal argument, your agent will most likely be entitled to the lesser amount of, half of the deposit, or the amount the commission would have been, if the transaction had been successfully completed. It doesn’t matter what the title company said. They do not legally represent either party in the transaction. The person in the posting needs to work with their own realtor (who does represent them), and their own real estate attorney (who legally represents the poster). Anything that the title company says is nothing more than hallway talk.

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Filed under: Bad Credit