Expert: Lisa Webber - 7/7/2009

Question
My girlfriend and i were looking to have a townhome built for us. We were required to put $500.00 a month down on the home until it was done. we are first home buyers and 22 years old, however when our credit was run we were not approved for the loan. the seller was willing to work with us for a few months to help out scores come up. the house got built and 7 mnths later we are still not in the home due to credit issues. we have been denied 3 times in 7 months and the house is built and we are now a month past the original move in date. we need a place to live and the seller says that we can not back out and say we do not want the house anymore without trying for 1 more loan that they think might get approved. we do not want to because this process will take another month. and we can not keep waiting. they say if we back out they will keep a total of 4000 that we have givein them. Is this right? they say in "good faith" we need to try for another one which would make this the 4th loan we applied for. At what point can we call it quits?

Answer
Hi Johnathan,  I'm not sure what kind of deal you got into.  In the "standard" Maryland Realtor Board contract, there is always a financing contingency when a buyer needs to get a loan for a house.  They will put down a "good faith deposit" of a couple thousand dollars, but if they are unable to purchase the house because the bank won't loan them the money, they get their deposit back. There should be a deadline in the contract, a settlement date where you are to take possession of the home, it can't be an open ended contract where they can string you along forever until you are able to get approved. Do you know if you have a financing contingency in your contract?

It sounds like you may be working directly with the builder and not with your own Realtor.  I highly recommend that you have your own representation when entering into a purchase agreement, your own agent guiding you because laws are different from state to state and I'm not sure where you are located.

It sounds like they were asking or the $500/month to go towards your downpayment.  Most first time buyers are choosing FHA financing where you need to have 3 1/2% of the purchase price just for the downpayment and it needs to be your money unless you get a gift letter from someone like your parents.  You may be paying the closing costs as well out of the $4000.00.  

It also sounds to me like you may be being taken advantage of as you are a young, first-time buyer.  I don't mean any disrespect by saying that but when you are a first-time buyer, actually of any age, this is all very new to you and you don't really know what to expect.  It also sounds like you don't have a Realtor working with you which really puts you at a disadvantage when you are dealing with these professionals who sell houses all the time.

I highly suggest you talk with either a real estate attorney or maybe even a parent that you can confide in and have them go through the paperwork that you signed to see what it is that you agreed to.  If in fact they are in breach of contract and you have a financing contingency that says you should have been able to get financing by now, then they need to give you your money back.  

If this is the case, I would send them a letter by certified mail requesting that your deposit be returned. I would start with the letter, being nice, letting them know that you really wanted the house but unfortunately with the stringent lending environment, you have been unable to secure a loan and you need to find a place to rent so you need your $4000.00 back.  

If they do not respond, I would follow up with a letter from an attorney.  That will usually take care of the problem and you should get your money back.  Worst case you would end up needing to take them to small claims court, but the letters should work.

Let me know if you have any other questions or would like more information or clarification about anything ok?  Good luck!