Hoping someone may answer a legal question about an earnest deposit that was placed when my house went under contract. Buyer place a $1k deposit, and everything was going well until the buying realtor stopped responding to my realtor, about a week after the inspection. The inspection had very little on it, my house is in very good condition, luckily for me in the horrid AZ market. The buying realtor finally responded to my realtor stating that my house would not appraise for what the contract was written for. They never had a true appraisal done on my house, they said by pulling comps in the area, it was off by about $10k. We were willing to further negotiate, even though we feel the house would appraise better than what the comps show, we have many upgrades, including a $40k pool, a remodeled kitchen with all new appliances, and fresh paint.

To make a long story short, 3 weeks into the deal, we received some form of canceled contract notice. Along with that, we received a form basically saying that the buyer gets their money back because out house didn't appraise for the amount of the loan causing the contract to be voided. Obviously some other house came along or an acceptance offer from a foreclosure finally came through, at least that is how it seems/feels. My complaint is that there was never a formal appraisal, so how can they legally say my house did not appraise. I would understand if we were off by $50k, but we are talking $10k on a house that used to be worth $420k, now selling for $310k. We were about 3 weeks into the deal, and I just can't see how a contract can be voided like that, with out a professional appraisal. Do I have a leg to stand on if I try to battle this? It's just $1k, but I am so tired of just accepting things like this when they happen, and this time I feel like at least trying to delay the buyer from getting their money back as long as possible, in hopes that they think twice before they do this to someone else.

If anyone has any info as to my rights, or experience in the same situation, please let me know.

Thanks in advance for any assistance..

EM Deposits should be deposited into the brokers Trust Account. Monies cannot be released from the Trust Account without the OK from both parties or the Judge rules on the matter.

I had a buyer client flake out a deal, the seller wanted the Deposit, the seller wanted the deposit and 3 years later the money is still sitting there.

As a Listing Broker representing Sellers, I would expect to see a "Letter of Denial" from the Lending Institution demonstrating that the Buyer had acted in Good Faith and had indeed submitted a "accurate" and complete application in the time frame specified in the P&S to acquire the necessary financing. Depending on who is involved these days, the "Formal Appraisal" could have been a simple AVM (Automated Valuation Model); but I have not seen this being sufficient for a DENIAL. You deserve a Human Being's evaluation; but that's just my opinion from 2000 miles away.

Another satisfactory response might be a "Notice of Credit Action Taken" but these usually get generated when it is some blemish on the Purchasers' Background that leads to the Loan being denied, and has NOTHING to do with the house, and occurs long BEFORE Appraisal comes into the picture. These are usually more embarrassing for the Buyer.

Your Broker should be able to get a clear read on the situation by contacting the Loan Originator/Mortgage Consultant or whoever is representing the Lending Institution. Until a clear statement is forthcoming, the EMD goes nowhere.

I hope you can get to the bottom of it !

PostScript: I agree with Dayton above. I also think that $1000 is kind of a dinky deposit for a Property as valuable as yours. It has to be "large enough to hurt" if you fail to perform your part of the bargain, meaning the Buyer. Many people enter the Real Estate Market as if they are visiting the local Used Car Dealership (no offense to Used Car Dealers); BUT - We're dealing with serious money over here . . . . even if the market took a tumble ! Entering into a Contract is a Grown-Up Thing. Some people do not take it seriously. I mention this because your situation sounds like others I have participated in where "The Buyer just never got around to submitting the required Loan Application." I hope you can find out.

And insist on a Bigger Deposit Next Time ! Good Luck.

Important Notice: This information is provided as basic educational information by the author and is not a substitute for the advice of an expert and/or the advice of a lawyer. There is NO representation as to legality, accuracy, correctness of the herein information and the reader is strongly urged to consult a lawyer in the relevant jurisdiction to ensure accuracy before acting on this information.

And to build om Vermont statements:

When I represent buyers we come in with low EM deposits. We don't always get away with it but I try. The Deposit is usually countered to a more substantial amount.

When I represent sellers 1K on your property, I would have advised you to counter with a higher deposit.

The buyers agent at this time seems to be in control of the situation. Kind of sounds like the Listing agent is going with the flow. An agent is an advocate for his/her client. If I was the listing agent I would have been in touch with the lender ensuring that the paperwork was in, the apprasiser had done his job, basically keeping the deal together.

Who is holding the earnest money? Seller or listing broker,attorney or title company?

What does the paragraph in the contract say about earnest money?

Unless there is a provision in the contract stating the appraisal must be at or above the sales price the buyers would still have to close just bring out of pocket money to make up the difference. Example purchase price 200k,house appraises at 195k buyer then has to bring 5k to closing or lose earnest money as liquidating damages unless it says otherwise in the contract.

WORDING IS EVERYTHING

There are just to many what if's here.

You either need an attorney or the head broker to review documentation for your listing to see about the earnest money.

no legal advice

Thank you so much to everyone that replied. There is a ton of useful information provided, and I will be discussing all of this with my realtor to see where we stand. I believe the title company is holding the money right now, but will also verify that info. Initially I figured I would just not sign the acceptance form until I was threatened to be taken to court, but after reviewing the info here, I really think I may have a shot at getting the money, instead of just delaying its return to the wannabe buyer.

Some replies mentioned that my realtor is not being very aggressive or acting in my best interest. You are all spot on, that is yet another issue I got myself into by working with the relative of a good friend. While the market is beyond awful in most of Arizona I still feel that she is not the realtor needed under these conditions. Right now sellers really need an aggressive and almost politician like (poor attempt at being funny) realtor. Unfortunately my realtor just seems too nice to make anything happen right now, so dealing with that is going to be a joy. Hopefully if there are any "too nice" realtors reading this, they don't take that in a bad way, some people are just too nice.

Anyway, thanks again for all of the very usefulinformation. If my nightmare happens to do a 180 and has a fairy tale ending, I'll make sure to update in hopes of keeping someone else's hope alive. If it ends as badly or worse than it's going now, just keep an eye on the Phoenix news and I'm sure you hear about me (another poor attempt at being funny, I'm not really psychotic, yet..).

Thanks...