When a buyer cancels because he is tired of waiting to get the deal closed, is that a legitimate reason not to close? Look at your contract because that’s what will govern his losing his EMD or walking away simply because of buyer’s remorse and not forfeiting his EMD…
The types of problems that we are seeing more increasingly are –
EMD (Earnest Money Deposit) claims are becoming the center of failed deals more than ever. It seems like it is clear if a buyer defaults that an EMD is due to the seller.
However, we are seeing more conflicts with trying to get paid these EMDs by closing agents not abiding by the language in our contracting that was agreed to by us and the buyer.
The real issue behind a closing agent not releasing an EMD is he can get sued by either or both parties to the transaction. The cost of the lawsuit outweighs the fees he made on the closing so he suddenly becomes “static” with who should get the EMD.
Some of the closing agents reply with “Get a court order and I’ll release the funds.” That implies they expect you to sue for the money. If you are using a FAR/BAR contract, it requires you go to mediation with the loser paying the costs.
If you get that response (court order) from a closing agent – send him an email and maybe even a certified letter to “Immediately deposit the EMD funds in question into the court registry.” The closing agent is liable for the escrowed EMD and if he already released them back to the buyer, he could have a very serious problem with his license.
The closing agent’s responsibility is to fulfill the terms of the Purchase and Sale Contract, not interpret if one side or the other is correct. That decision is for mediation or the courts, to decide.
Don’t be intimidated by closing agents who tell you what they are going to do, they should be doing what the contract says. If the contract says to release the EMD then that’s what should happen – theoretically.
But here is the unseen part of this dilemma; the closing agent goes to his title insurance underwriter and asks his representative about releasing the EMD assuming you have the language similar to what our Students use. The title company doesn’t want a lawsuit and says, “Don’t release it unless both parties agree in writing.”
What are the chances of the opposing party (the buyer) agreeing to give up his money – very small to none. However, it can happen but always expect the worst that he won’t sign anything.
So what should you do? Press for the funds to be transferred to the court registry to see if the closing agent even has the money and let him know you want your money.
Look into the mediation process and make sure you have a case – the language in your contract is what should prevail in mediation or in court, not the feelings or change of heart by the buyer.
The assumption here is the end-buyer didn’t come to closing on your A – B and B – C closings. But what if the original seller (A) decides not to close? Houston, you have a problem unless your contract clauses specifically address this issue of the original seller not closing.
The end-buyer may not be understanding of your seller’s problem and sue you for breach of contract. The issue is to prove a monetary loss but the cost of the litigation can be expensive – even if you prevail.
To your limitless success,
Dave Dinkel
