Contract contingent on inspection

[ssackrider]

I seem to be in a huge problem.  I have been trying to get into real estate investing for a couple months now.  I finally have a foreclosed home under contact.  The house is listed as “sold as is”.  I have a contract that is contingent on inspection and finance.  After inspection, I decided that the house requires too much work, including mold throughout the basement.  So I wanted to back out of the contract based on my findings during inspection.  My agent sent a release form to the bank seller.  The bank will not sign the release form; they are demanding to keep my earnest money, which is $5,000.

How can they do this?  That is the entire reason why in the contract, the buyer decides to put contingent on inspection.  If I cannot decide that the inspection is unsatisfactory and decide that I do not want to purchase the house anymore, then why even bother putting this contingent in the contract.

If there is any advice that you can give me, it would be GREATLY appreciated.  I am considering offering to buy the house for $10,000 less than what we agreed on.  Otherwise, I want out of the contract.

[Admin]

ssackrider,
Without actually reading the contract and knowing more details, it would be foolish to make suggestions from this end.  If your contract has valid inspection and financing contingencies, then you should be able to get your earnest money refunded.

My advice would be to contact an attorney before making any more contact with the seller.  What does your agent say?  It's rare I've seen or heard of a seller thinking they have valid claim to earnest money without a reason.

What are you leaving out, if anything?  Were there deadline dates on your contingencies that passed?  Did you sign a separate bank as-is addendum that overrides the primary agreeement?  I have a hard time seeing a bank playing hardball with your earnest money.

If it's as clean-cut as you say, then I would think you have no reason to worry about the earnest funds.  If you think you're still in a position of strength (doesn't sound like it) where you can continue the negotiation process, then sure, make a counteroffer.