Had a contract terminated by buyer 80+ days after contract receipted b/c IMO a BS claim by lender (facebook friend of the buyer) using "unacceptable property" as claim to deny loan...back story - we stripped out buyers contingency to sell with counter offer before contract was accepted to separate buyer's offer from a 2nd offer...fast forward a few days - a negotiation for a small $9K allowance to repair plumbing is made to buyer...of which part lender is (supposedly) involved along with title company...few more days and appraisal passes (i.e. above sales price)...80 days later b/c buyer cannot sell home, buyer decides to terminate and use IMO obscure paragraph 2b to threaten (through litigation) earnest money release, which by the way was paid to me directly...not title company to hold as escrow agent...paid to buyer directly...no changes to property condition throughout the entire process...just some old galvanized pipes, etc. that the entire street has, which was reason behind the $9K allowance during option period...

QUESTIONS:
1) how often is paragraph 2b used?
2) what's the longest number of days you've seen it used?
3) what would you do in this situation?

Why were you under contract for 80 days?

And why don't you offer to fix the things the lender is refusing to lend on so everyone could proceed?

You refer to the $9k as minimal. Is this the home value in the million plus range or was that a humble brag? Just curious, but it's relevant to my first question.

I wouldn't call 2b "obscure" as the addendum is only two pages long and designed to be pretty straight forward.

Nm

Thanks for your response!

Question 1 - delayed for buyer to sell townhome, which was not selling...2.5 months on the market with multiple price drops...was bleeding price, which triggered buyer using paragraph 2b to get earnest money back IMO

Question 2 - buyer planned on redoing entire underground galvanized pipe system...no issues with plumbing in my entire time of living there...negotiated or "caved to wife" to sell b/c we are moving...I could be wrong, but who in their right mind would drop $20K to redo the entire underground piping for a system that was fine to appease a buyer that may or may not follow through with the contract...plumbing scoping and hydrostatic testing showed nothing major except minor immaterial leaks natural of a 50 year old system.

Question 3 - absolutely no humble brag whatsoever. I would just consider $9K on a $450 home, pretty small...but apologize if that seemed so...

Obscure was the wrong word to use...but it just seems that a vague response on a loan denial that can be used all the way up to 3 days before closing to defraud a seller from his earnest money just seems ripe for unethical activity when property condition hasn't changed since day 1 of the process, strong appraisal, outside the lender approval deadline, etc. etc...but to each their own...

The underwriter for the lender has to make sure the home is "safe and secure". Working plumbing should fall in that definition. If the appraisal notes the problem then that is the only way the u/w would even know about it. Did the report say anything? Did you see the report?

Thanks, very good info...

Buyers agent said the appraisal was fine nearly 60 days ago...we requested it after their termination, but buyer agent refused and said they did not need to send.

The lender must send in writing why they suspended or denied the loan. I assume they cannot provide it. I would not refund the money unless they can share that. I'm talking lender not some letter from the mortgage guy who can make up anything

Thanks Steve! Very much appreciated!

Here's how I would have handled these:

Q1: Extensions are fine within reason, but each time you extend, you need to put up more option money. The longer we extend, the greater the amount. If the buyer is serious, no problem, right? 2.5 months because they can't sell their home...that's a problem.

Q2/Q3: Galvenized piping in itself isn't a deficiency. $9,000 is a big credit to me. Of my 30 or so deals this year, I've had two in that magnitude. One was taken as a price reduction on a house priced almost double yours on structural and electrical issues, and the other was not a credit but seller paid repairs on a townhouse with bad stucco. (Upkeep on stucco is WAY cheaper than full on repairs of stucco y'all).

The contract: You don't need to see the appraisal, but like Steve said, you definitely need to ask for the denial letter.

Good luck man, let us know how it goes.

They refused to take a price reduction for the allowance. Agent wanted a higher commission, just venting and speculation though. They originally wanted me to bring a cashiers check to close, which we said "no" to way back during the option period (didn't know way back then it would bite me though. Lender and title company were apparently apart of discussions for said allowance, at least that is what buyers agent said. Just frustrating that there are so many "outs" well past any reasonable time IMO (80+ days).

Question for both - what is the difference between a denial letter from John Doe broker vs. denial letter from lender/underwriter? And even if they provide something at this point, how much would you both trust it? Or said another way, what recourse do I have to question it's validity?

PS - we were okay if their sale was drawn out a bit as long as it closed b/c we were building and I didn't want to live with my in-laws...

I doubt they refused the price reduction because of a greedy agent. We are talking 270.00 in commission on a 13,500 deal. It was likely to roll most of the costs into the loan. Say 20% percent down that is 7200 of repairs in the loan.

The denial letter would have the lender letterhead and mailed directly to the buyer. It would be signed from someone from the lender and most likely a contact listed. Even if no contact info the mortgage guy could track it down.

Oh I would tell the buyer to pound sand until I saw lawyers involved

Ok, thanks again!!!

FYI - Denial letter is not on lender letterhead...only a corporate phone number to the financial institution...and what appears like an unofficial electronic signature of the underwriter...no date near signature...only at beginning of document with a date that is 6 days after the email from buyer agent that they were terminating contract...so seems fishy to me honestly...

Lawyer is involved on buyer side...as I received email threatening suit from said attorney if release of EM is not signed...gathering information to send to an attorney...still figuring out who to use

PS - the denial letter document is dated 2 days prior to the pdf properties modification date, so they backdated the document IMO

EnronAg: Are you represented by a Broker/Agent? If so, what are they advising? The 2(b) is not obscure but can be used in ways that it was not originally intended. A letter from John Doe Broker is no good. A written statement (letter/email) from the lender with specific reasons stating why the Property doesn't satisfy the lender's underwriting requirements is mandatory. Timing and content of purported letter are highly suspect. I also wouldn't agree to release the funds at this point and would demand further documentation/proof from the lender. The seller going to an attorney and threatening action is likely an initial attempt to scare you off and agree to return $ and go on your way.

Assuming you didn't allow the Buyer to cross out specific performance as a remedy on buyer's default, you have that and the attorney's fees provision to give you some punch as well. Hate to hear they are treating you like this after you let them put off closing for so long.

Yes, I have a broker and agent...but they are kinda hanging me out to dry and said they cannot advise and assist now that my wife and I "personally" received the email from the attorney. They were not included on it, so not sure if that matters or not.

Also, what sections or pages of the contract are you talking about when saying crossing out specific performance?

15 Default

Thank you! Nothing crossed out.

Is it true to any of you guys knowledge that my agent and broker can no longer give advice or assist in this matter??

Just shocked me when my agent basically said "you're on your own, buddy"

From what I've read, a lis pendens cannot be filed to recover monetary damages in this situation. But are any of you aware of how they could dirty title to stop the sale of the property over withheld earnest money? They claim no interest in the property. Just the release of earnest money.

Very difficult to put a lien on your home. Really only tax and mechanical liens do that. If they got a judgement that would cloud your ability to secure the mortgage for the new home but it takes years to get there depending on your defensive reply.

I suspect since the Buyers contacted an attorney, your broker/agent has backed off giving any direction on how to proceed as they can't get into giving legal advice unless they are also an attorney. Lis pendens governed by statute and only for specific reasons listed in the statute. I think you are just going to have to decide how much you want to push back to keep the earnest money.

This may have been answered but what was the scenario that occurred to where you personally held the earnest money?

while it was not written into the contract (which in hindsight, I'm pretty upset about), but it was discussed in conversations between agents and it was b/c we made the buyer pay non-refundable earnest money due to the buyers original contingency to sell...this was done b/c we had 2 similar offers and it effectively stripped away her contingency to sell...but she ended up using paragraph 2b of the lender approval saying the property was unacceptable...when I'm baffled to know what was unacceptable about it...will try to get more information from lender behind this, but I just don't think I'll trust any of it, at this point...

EnronAg said:

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while it was not written into the contract (which in hindsight, I'm pretty upset about), but it was discussed in conversations between agents and it was b/c we made the buyer pay non-refundable earnest money due to the buyers original contingency to sell...this was done b/c we had 2 similar offers and it effectively stripped away her contingency to sell...but she ended up using paragraph 2b of the lender approval saying the property was unacceptable...when I'm baffled to know what was unacceptable about it...will try to get more information from lender behind this, but I just don't think I'll trust any of it, at this point...

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Now it's starting to come together. This makes sense why they would have handed you the EM check. Not trying to beat a dead horse but yeah, you should have got the non refundable EM part in writingby just calling it option money. I would contact a real estate attorney ASAP and if you need recommendations I'm happy to send them.

Agree with last few posts. My agent made a bad mistake. Not real happy with it. But that is not even my issue at this point, it's paragraph 2b of the finance addendum and the shady nature at which that was chosen with the backdated documents, etc.

It is the issue though, if you had written the additional money as option fee, the buyer wouldn't have a leg to stand on.

As it is, you're fortunate that you hold the money because the title company doesn't take sides and it wouldn't be worth you getting a lawyer in that case. I don't think the buyer is going to mess with a lawyer since they're on shaky ground themselves. Probably just blustery at this point.

Now that you mention the discussions among the agents and the fact that the earnest money went directly to you, I'd push hard for the letter from lender. Even if you get a well written and documented letter, I'd still not budge and put pressure on Buyer and Buyer's agent with the goal keeping the earnest money.

Thank you guys!!! Keep the feedback coming...I've been waivering on how to proceed and any input is greatly appreciated. And I agree diggity, my agent dropped the ball...but you better know that mistake ain't ever happening again on my end now that I've been through this.

This would probably be my strategy.

Fist get the buyer to go down the legal trail until you k ow he is spending money.

Email or letter from lawyer is free
Certified letter to start legal process cheap and almost free
File an actual petition in court. Now costing money. Probably not huge amount but you know at that point you coming to a decision to spend yours. Attorney are not cheap and now you are spending personal time on the problem.

You can draw your line at no negotiation, give in or settle with some compromise. At minimum I would calculate the carry costs from date of contract expiration to be buyer close.

Most of those costs are easy. Take annual taxes and insurance and pro rate the cost cost divided by 365 times days carry over. Same for interest paid just don't use principal reduction in your mortgage payment. That is a hard number to at least use as a data point and or negotiation tool