Expert: Karyn Foley - 12/13/2005

Question
Dear Karyn,

We sign a contract to buy condo (in NC) back in August 2005; these condos are being converted from apartments. The condo units that we signed for has someone living init until end of January 2006 when their lease is due to expire. Once the current occupant leaves, apartment will be renovated and sold as condo. We did get pre-approval in August 2005 and send pre-approval latter (actually opinion latter from bank stating that we would qualify for mortgage). We recently (December 2005) got updated opinion latter from same bank saying that we in-fact would not be able to qualify for the mortgage.

My question is this. Who would get the earnest money that we put ($2000) for this condo? The contract does say that we have to get financing in 20 days from the date of contract and we did get the opinion latter within the 20 days, but since closing was so far (estimated closing in mid to late March 2006) we could not really lock in any loan term for that long period of a time. Now that we are unable to get financing we want to back out of the contract. So technically we are default, however since there are still over 100 days before the schedule closing and renovation for the condo has not started yet, I feel that we are entitle to refund of the earnest money.

What is the best course for us to take? The selling agent is saying that he would release us from the contract if we sign release of a binder and allow seller to keep the earnest money.

Thanks for your help in advance.

---Pete


Answer
Dear Pete:
 My first question is who represented you in this transaction?  The seller is represented but you should have had an advocate as well.  Your individual interests are obviously not being well handled.
 The letter that you received from the lender initially was only an opinion.  A formal approval was not given as many steps had yet to be conducted, such as a review of your tax records and employment records, a credit report, an appraisal, et cetera.  Also, since the unit was not yet legally able to have been renovated and declared officially a condo for sale, even if you were qualified and ready to go, you could not have taken occupancy.  Your time for approval should have been formally (in writing) extended allowing the unit to have been made a condo and ready and allowing you sufficient time to have submitted what was required for an official approval, and the appraiser an opportunity to evaluate the unit. There should have been other contingencies that you should have had the chance to conduct such as inspections within a stated period of time.  That would be a right of any buyer, and then you would have been able to get out of the contract pending anything you saw or inspected that was not satisfactory.Any time is of the essence involved in the contract has probably been voided.
 Now, you have another opinion that states you are not qualified.  I am surprised that the agent is treating you in this manner.  Unless, of course, there is something in the contract with which I have not been made aware - SUCH AS A CLAUSE IN THE CONTRACT THAT STATES THAT THIS IS A NON-REFUNDABLE DEPOSIT.  I would ask for a meeting with the builder/seller, and explain your situation.  If this unit is in a popular building and there is still amost four months left until the uniti can be sold,, the builder/seller could probably sell it to the next buyer for the same price or even more; spring is a better market than now during the holidays.
 If all else fails, I would consult a real estate attorney who can apply pressure and has much more clout. Also, mediation  or arbitration.  Far cheaper for all parties to simply come to an agreement under a spirit of cooperation in solving this issue. Again, I may not have all the facts.  I am simply responding as an agent surprised at the treatment you are receiving knowing what I know. PLEASE CHECK OVER YOUR CONTRACT AGAIN AND SEE IF IT STATES THAT YOUR DEPOSIT IS NON-REFUNDABLE!!!!
 Good luck,
KARYN FOLEY