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  1. #1
    Join Date
    Sep 2016
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    Default Can a Seller Get an Earnest Money Refund if All Contingencies Were Met

    Home sellers and buyers entered into a real estate contract in California. The contract included contingencies for appraisal, inspection and loan approval. After all contingencies were met, the buyer's agent said that he was going to send the forms for removal of the contingencies, but he never followed through. The day after the scheduled closing date, the buyers agent called and said that the buyers did not have the money and would not be purchasing the home.

    The buyers then claimed that they did not initial the liquidated damages clause in the purchase contract, and claim that their real estate agent told them not to initial that clause because he knew they might have trouble coming up with the money. They say that he told them that if they did not initial, they could cancel at the last minute and still get their entire deposit back, even though the contingencies were met.

    As they were put into financial difficulty by the unexpected cancellation, the sellers accepted an offer that was lower than the buyers' had committed to paying. Can the sellers keep the deposit or sue for breach of contract?

  2. #2
    Join Date
    Sep 2005
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    Default Re: Can a Seller Get an Earnest Money Refund if All Contingencies Were Met

    The buyer's agent does not understand the purpose of the liquidated damages clause. By accepting that clause, his clients would have agreed to forfeit their deposit in the event that they backed out, but in doing so they would have limited their liability to the amount of the deposit. By telling his clients not to initial, he left them open to a claim for 100% of the actual damages suffered by the buyer in the event of their breach of contract -- an amount that could be much larger than the deposit. Also, if the buyers have confessed that they entered into a purchase contract while representing that they were able to close, misrepresenting their intentions and financial condition in the process, they may have committed an act of fraud.

    On the other hand, the seller's agent made a mistake by allowing the deadline for contingencies to pass without insisting that the seller either cancel the sale or release the contingencies. As a result, it is necessary to have a real estate lawyer review the contract and evaluate whether the buyers can still be held to the contract or if the failure to force removal or cancellation leaves the buyers in a position to walk away without consequence.

    The sellers should talk to a real estate lawyer about the transaction, sharing the full facts and having the lawyer review the contract, and the lawyer can then advise them about the potential liability of the buyers and of the seller's agent.

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