Help! Losing Earnest Money

[sandyb]

Hi all,  I am new to real estate investing and have made my first huge error.   I was set to close my deal on 3/24, two days before close my mortgage broker tells me we might need an extension.  Lender is running behind.  Seller is fuming mad, agrees verbally to 3 day extension. Lender won't return calls and emails.  Seems as though they have gone out of business.  Seller refuses to extend to allow me to get new lender, won't return calls. Title company refuses to return my $10,000 deposit. Made the big mistake of giving my deposit to her title company as this was a FSBO.  I have contacted an attorney who charged me $400 to write a demand letter but he says we don't have much of a chance.

Any ideas out there?

[Dave T]

If your attorney say you don't have much of a chance, then your attorney is in the best position to know.  Make sure your attorney tells you what you should have done to keep from making the same mistake again.

[aak5454]

what state are you in?

if you are in Calif (and maybe other states), the seller can only keep your deposit to cover damages (i.e. if they have to sell the property to someone else at a lower price).  In the mean time, the title company will probably (should) hold your money.  

What happens to the escrow money if you do not perform should be spelled out in the contract.  Also, the seller probably is required to do a few things (issue a Notice for Buyer to Perform letter) before they can get truly cancel the deal.(also spelled out in detail in the contract).

also, is your attorney a Real Estate attorney?.  You need someone who understand local RE law and practices

[sandyb]

I am in Florida. Yes, my attorney is a real estate attorney.  He thinks we can sue the mortgage broker at a cost of $4000 but stand to gain maybe half at best.  Since title company and seller won't return phone calls we don't even know if they have already released the deposit to her.

[aak5454]

If the lender is out of business or in the process of closing, you can forget about suing them.  If and when you win the case, you probably will join a long list of others who are owed money.  Even if you win and they are in business, then you have to collect.  I think you will spend a lot of money and energy for little or no gain.

The other option to go after the title company and/or seller.  If you do this you may consider to start the loan process again to demosntrate good faith on trying to perform.  Note ,this process is not without consequence since your credit will get pulled again and may slightly deminsih your FICO score (only temporary and probably 10-30 points or so).

If you want the seller to perform (i.e. sell to you), maybe you should ask your attroney about filing a "lis pendis" againt the property.  This means you are putting a cloud on the title based on the existance of a lawsuit involing the property.  It basically makes the property unsellable since the seller will not be able to give a clear title to another potential buyer.

Another avenue is arbitration; is there any clauses about this in your contract??

I am not a lawyer but have done a lot of real estate deals as well as lot of big deals in the business world.  On the surface, suing people may seem like a good idea, but rarely result in a positive financial outcome for any of the parties (except the lawyers).  Even if you "win" you ahve to collect.  If you can fine a way to force the other party to work with you then , it much better....easier said then done.

[sandyb]

thanks AAK,  you gave me some things to consider, I appreciate your advice!