Expert: liznarr - 8/24/2007

Question
I have a question about contracts and ethical behavior for a realtor. I had a contract on my house in May for $224,900 - contingent upon the buyers 6.5% FHA loan. I even offered to pay a point to lower their interest rate. Well, they never locked into a rate (although they were able - when the rates went up they waited and waited). We were supposed to close August 22nd. I had my house packed and ready to go and movers coming -when I found out they changed their minds. To make a long, frustrating story short, I was supposed to get the $1000 deposit they put down because I have in writing (an email) that they could qualify - but didn't like the payment. Then their realtor turned around and said because they never signed the HOA packet agreement, the buyer's get the $1000 (actually their realtor wanted the $1000, but I felt I deserved it after them reneging at the last minute). I provided that packet to their realtor but he never gave it to them. I have had a lawyer writing to him and the buyer's that I am willing to release them from the contract as long as I get the $1000. Now, their realtor is saying that they never qualified for the loan in the first place. However, my question is: When is a buyer's realtor supposed to notify the seller that his client cannot get financing? I do not believe he is telling the truth but my lawyer says that they cannot subpoena that information unless there is a lawsuit. I am building a house and paying a hefty monthly amount each month on the construction loan -plus now my house is back on the market at a significant reduction and I may lose the new house unless I can find a buyer quickly. I feel as if I have been led on and treated unfairly. Do you have any advice?
Thank you, Margaret

Answer
Hi Margaret,

I am sorry to hear of your situation.  It’s one that happens too often, and I hate to hear these type stories.

You never said whether or not you have a Realtor representing YOU, but let’s assume, first of all, that you DID have a Realtor representing YOU.  In that situation, your Realtor should have kept you informed at varying stages of the transaction of the status of the Purchasers’ loan, either through the lender or through the Purchasers’ agent.

Your Realtor (or even the Purchasers’ Realtor if you did not have representation) should have NEVER allowed you to go to the extent of actually packing up your house without – at bare minimum – giving you a complete update on the status of Purchasers’ loan, and then letting YOU make the decision of whether or not to pack up.

Whenever problems arise in a transaction, the Contract of Sale is what dictates what is to happen and what remedies are available.  Short of specific language for a given problem, that is when litigation comes into play.  Check your Contract (if you have not already) to see what it says about loan application, breach, and earnest money being forfeited to a Seller.

My first question is, “Did your Contract of Sale have language written in it that the sale was contingent on the Purchasers signing the HOA packet agreement?”  Or was signing the HOA packet agreement simply something they had to do in order to be a part of the homeowners’ association?

If the Contract was not contingent on their signing the HOA packet agreement, it doesn’t sound to me as if this would be a legal out for them.

Next question is, “Who is the email from that stated the Purchasers could qualify - but didn’t like the payment?”  And does the email actually state that the Purchasers “didn’t like the payment?”  That’s pretty incriminating language in my opinion if it was stated in that manner.  If the email is from the lender, I would demand explanations as to why they are reversing their position now.  If it’s from the Purchasers’ agent, I would demand to know where he obtained this information.  If he was “flying by the seat of his pants,” that is deceptive and misleading, and for that you can file a complaint against him with the Real Estate Commission.    

When purchasers make application for a loan, a good, reputable lender can take all steps necessary within a couple weeks to determine whether or not a purchaser is a strong candidate for a loan.  Many companies can even approve a candidate in that period of time if they have good credit, debt ratios and supporting income.  If your Contract was finalized in May, the lender had PLENTY of time to approve or disapprove their loan and not wait until the last minute.

As a condition of releasing the $1,000.00 (if that is what you end up doing), you can insist that the Purchasers produce a letter from their lender stating when they made application, when they were denied the loan and on what basis, and when and whom they (lender) notified when the denial decision was made.  

A Purchaser’s agent should notify a Seller or the Seller’s agent IMMEDIATELY upon learning of a denial for a loan.  If the Purchasers’ agent was notified of the denial and subsequently failed to notify you or your agent IMMEDIATELY, I would hold out for the $1,000.00 to be refunded to you.  I would even go so far as to suggest that the Purchasers’ agent and/or his Broker-in-Charge absorb the $1,000.00 because of their negligence for any untimely notification to you or your agent, and agree to give you the $1,000.00 earnest money.

If the above fails, I would contact the Real Estate Commission and inquire about filing a formal complaint.  You can speak with an investigator who should be able to help you determine whether or not you have strong evidence to support a written complaint.  I can assure you that NO agent or BIC wants to have a complaint filed against them with the Real Estate Commission.

A lender will not release any confidential information as to why a loan was denied, but they can certainly give you “some” valid reason why the loan was denied.

Keep in mind, also, that most Real Estate Commissions will not take any part in an earnest money dispute.  They deal strictly with applicable real estate laws and regulations that agents might have violated.  The purpose of most Real Estate Commissions is to protect the public … from unscrupulous agents.  

If the Purchasers want to back out simply because they waited too long to lock their rate, and rates went up during their period of procrastination and they “didn’t like the payment,” that is not a valid reason to ask for their earnest money back.  They knew the rules (or should have known the rules through advice of THEIR agent), and you should not be penalized for their gamble that did not pay off.

Not knowing all the facts, and not having seen your Contract of Sale, the above are the only viable suggestions I can offer you.  Remember:  The squeaky wheel gets the grease.  Don’t be bashful about standing up for your rights.  

I hope some or all of the above points you in a direction you have not yet gone.  Good luck to you, and feel free to write again if you have additional questions.

Regards,
Elizabeth