Expert: Karyn Foley - 9/29/2010

Question
I sell my house and lot to Willard for $100,000. The terms of the contract call for Willard to pay 10% of the purchase price as a deposit toward the purchase price, or as a down payment.The terms further stipulate that should the buyer breach the contract, I will retain the deposit as liguidated damages.  Willard pays the deposit but because the financing of the $90,000 balance fall through, Willard breaches the contract. Two weekl later I sell the house and to to someone else for $105,000. Willard depends her $10,000 back but I refuse claiming the Willard's breach and the contract terms entitle me to keep the deposit.  Discuss if I or Willard is correct.

Answer
Dear Geneva:
 I do not have a copy of your contract, so I can only give an opinion.  To get a firm legal response, please be advised that I cannot "practice law without a license" and you may need to seek out a real estate attorney.
 Your contract probably carries a standard set of contingencies, one of which is the appraisal contingency and the other being the loan contingency.  If that is the case, if the buyer included that in the contract and the financing falls through, he is given his deposit back by the seller.
 You did the right thing by  putting the house back on the market and you sold the house for MORE MONEY just two weeks later.  Thus, you made a profit not lost money!  There was no financial loss for you.  What exactly are your damages?
 Your contract should also call for a dispute resolution process, including mediation.  That would be your next step.  Then, you may have an arbitration clause that was incorporated by both parties into the contract.  That would be your next step.    Consider the point, though, that these processes cost money and that the fee is usually paid by the party who loses the decision.
 What I do not understand is why you are not happy that you sold the house again and saw a gain in your profits.  That deposit is in no way anything but a good faith deposit even though it eventually would have been part or all of the down payment.  You should count your blessings!
 Liquidated Damages is default money only!  Your buyer probably did not default, but exercised his right to withdraw if he did not receive the expected financial commitment from a lending institution.
 If I am missing a point or if there is more to this issue, please let me now.  If you were represented by a real estate professional, you should seek direction from him/her.
KARYN FOLEY