options to get earnest money back

edited February 2009 in Seattle Real Estate
Here's the cliff notes of my situation:

Signed the P&S with $20k down early last year on a pre-sale. One of the addendums was to release the earnest money to builder instead of holding in escrow. Fast-forward a few months, I was laid off at the end of Sept with the closing date of Nov coming up quickly (have since found a job). Made the effort to try and obtain financing - clearly was not going to happen. Builder refuses to return the earnest money, stating that the money was for all the enhancements requested in the P&S. We never waived the financing contingency. Solicited an attorney to provide official notice of contract cancellation and demand earnest money back. There was correspondence back-n-forth between builder's lawyer and ours. Bottom line was still no (in early Dec '08).

Did a quick check over the weekend and the house was sold on 1/27/2009.

What options do I have now to get the $20k back?

Comments

  • Consult with an attorney.

    I don't know the specifics of your P&S agreement, but I think I had a similar situation with a place I had under contract 2+ years ago. I had put down earnest money and also paid some money for upgrades on a place under construction. The deal did not close because the builder did not finish construction on time.

    When I went to get my money back, they tried to keep the money for the upgrades. In my situation - I had an agent who went back to them. As I recall, the request was something like - "Tell me exactly what clause in the agreement it is that makes you think you get to keep that money?"

    got a check 2 weeks later. Of course, this was 2006 when builders still thought they could find a greater fool. They will probably fight harder now.
  • Since you already hired a lawyer and still don't have the money back, the odds are not good at this point. Did the house sell for what your price was? If so, you may be able to argue that the builder suffered no damages and so is not entitled to the deposit.

    Your consolation is that prices and/or interest rates may fall enough that your savings when you do buy may well be greater that $20K.
  • jon wrote:
    Since you already hired a lawyer and still don't have the money back, the odds are not good at this point. Did the house sell for what your price was? If so, you may be able to argue that the builder suffered no damages and so is not entitled to the deposit.

    Your consolation is that prices and/or interest rates may fall enough that your savings when you do buy may well be greater that $20K.

    well, i did not pursue further legal action because of:

    a. escalating costs - my lawyer confirmed that it would be pretty expensive to litigate - and when we win, it could take years to get the money back including fees.

    b. the house did sell for 17.5k less.
  • ah - sorry; I scanned right over that "Solicited an attorney to provide official notice of contract cancellation and demand earnest money back" part of your post

    assuming you got competent advice - I'd guess you are left with what Jon suggests - the consolation of knowing that you can probably buy the same house for much less than $20k off next year.
  • Small claims court might be a better option than walking away. You would be limited to suing for only $4K of your original $20K. But, no lawyers and no drawn out process. To me, $4K is better than $0, but ultimately it's up to you.
  • Unfortunately you are probably screwed. Builder addenda are stacked heavily against the buyer, especially when it comes to earnest money. This is unfortunately a very typical scenario that I've heard from buyers.
  • If you read the builder's addenda, you'll probably see that there's a portion in there that says that the builder's addenda supercede any other addenda attached to the offer.

    That makes your financing addenda null and void.
  • You are out $20k. All pre-sale contracts that I know of have a clause that earnest money is non-refundable or used towards upgrades/color selection chosen by buyer post 30 days. Unless they sold the house for $20k more. :)
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