Buying or Selling a Home/Earnest money
QUESTION: My daughter had a buyer for her house and therefore she put down $1000 in earnest money plus $300 for a home inspection on a new house she would like to buy. Now the lender of the buyer of my daughter's home says she doesn't qualify for a loan. Is my daughter out her $1300 or can she get that back seeing as she is not at fault for the buyers problem?
ANSWER: Dear Ralph;
Your daughter's contract on the new home may have been contingent upon the closing of her current home. If so, she would be able to get her earnest money back. If not, the contract would probably have a condition that states the contract is subject to your daughter being able to obtain a loan. If she needed to sell her existing home in order to get a loan then she would still be protected. There are exceptions: if the contract asked for a non-refundable deposit or had any other verbiage that precluded her ability to recover earnest money then she would not be entitled to it. Without being able to see the contract I cannot advise. As for the $300 to the home inspector: she paid for a service and cannot get that money back. (It is like going to a doctor for an examination because you think that you might have an ailment and then you find out after the fact that you do not have an ailment. You cannot expect the doctor to refund the money charged for the examination. It is a service that he/she performed.)
I suggest that you review the contract carefully to see what it says regarding the earnest money and any conditional verbiage. If there are questions, speak to an attorney who can look over the paperwork and advise.
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Thank you so much for your very informative answer to my question, it really cleared things up regarding this matter. I totally understand that the home inspector should not have to refund the money for their service that was performed. I just feel that it was the fault of the lender in the first place that resulted in my daughter being out this money, not the earnest money which I found out she will get back. Once again, I very much appreciate your help on this matter.
You're welcome. I wanted to clarify one other thing. Lenders often are a problem in a transaction and therefore we REALTORS often construct our offers to purchase or contracts very carefully to protect our clients from out of pocket expenses and deposits that may be forfeited. An inspection is one of those expenses. This is after the fact of course but in the future, your daughter should request a loan commitment by a certain date so she can move forward with her purchase. In North Carolina (where I conduct business) we have a due diligence fee that we collect and is given to the seller. If anything goes wrong (including but not limited to the loan not being funded) the seller has a certain amount of money they get to keep. This helps with damages. In your daughter's case if she had asked for a $300 non-refundable deposit on her existing home she would then have been able to cover the cost of the inspection in the event the buyer backed out of the sale of her existing home. I am very sorry that she cannot recover this amount but perhaps this will help her in the future.