Realtor won't release Earnest money?

Question

I am a mortgage broker. My customer was going to buy a house, but decided that they didn't want it cause the Furnace and water heater are broke. Well they put down $500 in Earnest money and got early entry into the home. My customer is paying rent. The realtor refuses to have the seller sign the Earnest money release (title company has it) because she wants it used as a rental security deposit. Customer is buying a different house and wants this money back. Are they entitled to it before moving out? They never signed anything for rental. Realtor is saying Furnace and Water heater was fine when they moved in and my customer is responsible....any help or ideas? The house is in Missouri.
Thank you

Answer 1

It is never a good idea to allow a buyer to move in prior to closing, it is also never a good idea to list a home without a home warranty. This smells like a Re/Max deal.

Answer 2

Earnest money is generally forfeited if the purchaser refuses to go through with the transaction, although there are certain loopholes in that, ie, didn't pass inspection, appraised under value, ect. Read that purchase and sale carefully and see if these problematic items fall within those terms. The realtor is on shaky ground here. I understand that if the borrowers are vacating they will want satisfaction that the property is sound thereafter, and since the borrower's occupied with the intent to purchase, there may or may not have been a security deposit agreement reached beforehand. Do you have ALL the documentation on this? Was the problem with the furnace discovered by a home inspector? There are a lot of missing pieces here.

What should happen is that if they realtor refuses to relinquish the money it should be held by the court pending a decision about who receives it. I would expect that if it IS held as security deposit it would be fully refundable. The dispute about the state of the water heater, ect is critical and I doubt an agreement will be reached. I would honestly suggest at this point you get a lawyer if they are hung up on the principal of the thing. On the other hand $500 isn't that much earnest money, here on the west coast that number is in the many thousands even on a modest purchase so they have to think about their priorities. I'd try to reach an agreement, in truth, maybe a 50% split and everyone cut their losses. But honestly, without a pre-move in walk through, or some kind of paperwork addressing the furnace issue, you'll make little headway either way, IMHO.

Answer 3

The "Earnest" money was put on the house as a deposit and since the deal is not going thru then both the Buyer and Seller need to sign the release so that the money can be returned to the Buyer.

The Seller can not unreasonably refuse to release this money.

The unfortunate thing is that if the Seller is not cooperating you will need to go to court in order to have the money released.

The REALTOR should not be getting involved unless to advise the client to release the money.

The rental is a different situation from the purchase and should be treated as a separate matter.

Answer 4

Frankly, they aren't entitled to it even after they leave, unless the original purchase and sale specifically allows them to simply change their mind. The realtor knows that the seller is under no obligation to return the earnest money.

Instead, the seller is being reasonable and sounds like they will return it if damages do not amount to more than the earnest money.

Typically a purchase & sale includes only a few contingencies that let buyers walk away and get their earnest money back-- a financing contingency or an inspection one. Something breaking is not good enough for them to legally walk.

The seller should keep the earnest money AND kick them out immediately.

Answer 5

I am in Ohio so I am not sure about the laws of other states. In our contracts the buyer has the right to void a contract if the home does not pass inspections, but must be done within 14 days after the signing of the purchase agreement. You need to thoroughly read the contract.

If the seller refuses to release the earnest money than it must be settled in court.

Answer 6

Contact the local realtor board for advice. Earnest money deposits have very strict rules. It can't just be taken and used for something else, and I can't imagine the title company letting that happen.

As soon as the cancellation of that purchase agreeement is signed, that money has to be released to your client. But I'd tell that client to move out of that house NOW. Every day he's in there is another day he can be blamed for something breaking. And obviously, they're already starting to point their fingers.

In the future, you should never advise a client to accept early occupancy. If something goes wrong, as it has here, it just creates a big pile of trouble.

Answer 7

Sounds like your client will be making a trip to small claims court. If a dispute cannot be resolved to both parties liking and the amount of money in dispute is less than $2500, the small claims court is the only way to go. Filing fee should run around $40, $40 and service fees, and misc additional expenses, and take 2-3 months to get resolved. Thankfully, no attorney will be needed. If your client wills the small claims case she can get her money back, and the filing fee as well. Have her go to the local courthouse asap and get the process in motion since the law moves slowly.

Usually just the threat of of filing a small claims case is enough to make them settle.

Good luck!

Answer 8

DON'T CONSIDER THIS ACTUAL LEGAL ADVICE.... SEE A LAWYER. IF THE SALE DIDN'T GO THROUGH AT THE END OF THE EXPIRATION DATE THEN IT SEEMS LIKE THE BUYER WOULD LOSE THE ERNEST MONEY IF SHE DIDN'T DO HER PART OF THE DEAL. THAT IS A LEGALLY BINDING CONTRACT AND IF SHE WANTS OUT PREMATURELY OR HAS BROKEN IT SHE'S OUT OF LUCK. SHE BETTER HAVE A GOOD REASON TO BREAK IT LIKE FRAUD, ETC. I WOULD DEFINITELY SEE A LAWYER AND MAKE SURE YOUR REALTOR STAYS ON TOP OF THINGS OR YOU WILL BE UP A CREEK.

Answer 9

You are a mortgage broker; not a lawyer. Tell your FORMER customer they need to get legal advice.

Answer 10

I would advise them to hire an attorney quickly.