Expert: Karyn Foley - 6/30/2007

Question
My husband and I signed a contract and put down $1000 earnest money for the purchase of a brand new home.  Three days after signing the contract, we noticed large cracks in the concrete on the front and back porch, plus a large crack in the center of the brick arch in the front of the home.  There were numerous cracks in the concrete in the garage also.  My husband met with the builder, who assured him that "concrete does in fact crack" and that the arch crack was merely cosmetic and would be fixed.  We let the 10 days pass when we could have backed out of the contract without penalty.  Shortly afterwards, we talked to 2 builders who said they were eyewitnesses to the fact that the multi-stage pour on the foundation of this house had to be capped for appearance purposes.  We terminated the contract. The builder called our real estate agent and was quite hostile, adding to our suspicions.  Of course, the builder wants the $1000 earnest money and we have not released it to him.  He wants to go to arbitration.  Do we have a hope of getting any or all of this earnest money back, or is the builder entitled to it since we did not terminate the contract in a timely manner?  Two other points of note:  He claims to have an engineer's report stating the foundation is sound (although the wording is such that it appears the engineer merely "eyeballed" the house and refuses any future responbility if wrong).  Also, the builders who spoke to us concerning the multi-stage pour are most likely unwilling to reveal their identities.

Answer
Dear Sandra:  This ia basically a legal question, and I am not allowed to "practice law without a license". However, the cost of seeing an attorney might be in excess of the deposit money and if you do not prevail, you may have to pay the attorney in addition to losing the one thousand dollars.  Perhaps you could get an attorney who would take it on a contingency basis.  Please check over your contract as mediation may be required prior to arbitration.  You might also wish to see who pays for the mediation and who is going to pay for the arbitration.  It could be as costly as a lawyer.  Is there a small claims court in your area?  That might be the answer. You should have had a home inspector during your inspection contingency period.  This would have been at your expense, and the inspector would have been able to make a determination or suggested you seek out the opinion of a structural engineer.  I am surprised that your agent did not tell you that you had these rights.  It is necessary to have inspections for your own protection and information, even for a new construction house.  The builder from whom you purchased the home had to get permits and final approvals for all of his work.  Did you or your agent check with the city or county where this home is being built?  They would have to have all of these on file and they are able to be viewed by you as a matter of public record.  You also have the right to see, or to review the copy of, the engineer's report.  Call the engineer, as he is going to be held accountable for what his report states and how he arrived at that determination.  My suggestion would be to sit down and come to a compromise with the builder.  This would be more efficient and cost effective than arguing over the earnest money and paying out money to support your position.  Make this a business decision, not an emotional one.  Plus, if it turns out you are right, it is a cheap price to pay up front rather than moving in a having a big problem in the future.  Learn from this, and make certain you conduct inspections up front and from an inspector you hire who represents only you.  Your agent should be giving you advise and support.  Let me know if you have any more questions, and how you are proceeding.  Keep me informed, and good luck.  I hope you prevail, get some or all of your money back, and find a home in the future that can give you happiness as well as more peace of mind.  Karyn Foley