Expert: Sue Bernstein - 8/4/2009

Question
QUESTION: hello,

i was the seller in a real estate transaction that failed to close.  after 8 long weeks in escrow the buyer was denied financing because it was discovered that he owned an income property with negative cash flow, making his ratios insufficient.  

the buyer submitted a $5,000 deposit to initiate the escrow.  am i entitled for a portion of that deposit?  i am in california, and signed a residential purchase agreement and both the seller (me) and the buyer initialed in paragraph 16 that states
"if the buyer fails to complete this purchase because of buyer's default, seller shall retain, as liquidated damages, the deposit actually paid..."

i refused to release the funds to the buyer, and it looks like we might go to arbitration.  should i even bother?  or should i just release the deposit?

thank you

ANSWER: Dear Sung,

Did the buyer remove his loan contingency?  If he did not then you have to return his deposit. If he removed his contingency then you have to decide if it is worth going to arbitration for the $5000.  You might try negotiating part of the deposit.

Hope this helps

Sue Bernstein

---------- FOLLOW-UP ----------

QUESTION: Dear Sue,

Unfortunately, we didn't have the buyer remove his loan contingency.  My agent never offered that option to me.  But even if a loan contingency was not formally removed, does the aforementioned paragraph 16 in the agreement carry any weight?  it must have been placed there for a reason.

thank you,

Answer
While buyer's have unremoved contingencies their deposit is protected.  Normally, we as agents keep track of the contingency dates and make sure they are removed.  If buyers refuse to remove you can continue along if they can't remove for a good reason and hope for the best or you send them a Notice to Perform.  The Notice to Perform tells them they must remove contingency or you have the right to cancel.  At any rate, until contingencies are removed deposit cannot be kept by seller.

Sue Bernstein