Expert: liznarr - 11/28/2008

Question
Our buyers backed out of a contract because they did had differences with the backyard neighbors. They had leased the house prior to going to settlement. They put down $1,000 for earnest money deposit. They did not go to settlement even though we met their demands of dropping the price $16,000. We met all agreements, but it was their decision not to go to settlement. Now they want to use the $1,000 as a rental type of money down, even though they never signed a rental agreement outside the purchase agreement which stated that they could preoccupy until settlement.

Answer
Hi Charlotte,

When problems arise, your Contract of Sale is the first place you need to go to determine what possible remedies you have.

You did not say how long the Purchasers had occupied the property prior to closing -- or when or under what circumstance the $1,000 was paid -- only that they leased the house prior to going to settlement.  In the absence of a written rental agreement and based on your question, it appears your Purchasers were tenants in a month-to-month lease if you had been accepting rental payments from them.  How this will affect your Contract of Sale in your state would be a question for an attorney, and I am not qualified to give legal advice.

If your Contract of Sale specified a $1,000 earnest money amount which had been paid and specified as earnest money; and the Purchasers qualified for the loan they applied for; and you met all the agreements on your side spelled out in the Contract of Sale; and the Purchasers just did not show up at a scheduled closing; then you probably have a good case to argue that the $1,000 earnest money should be forfeited to you.  Again, your Contract of Sale should have language addressing the forfeiture of earnest money and/or what happens in the event of default by the Purchasers.

Proving that these Purchasers backed out of the sale because of a difference with back yard neighbors might be hard for you to prove, unless you have witnesses who heard such comments and are willing to testify for you.

My best recommendation would be to talk to a good attorney, and/or go to a Magistrate’s or Small Claims Court in your area and have your case heard if you are trying to assert that the earnest money is now yours.

Good luck to you, and feel free to write again if you have additional questions.

Regards,
Elizabeth