If buyer backs out of sale, what happens to deposit?
Question: My wife and I recently contracted to sell our house to buyers from New York. They paid a $10,000 escrow deposit, which was held by the law firm handling the closing. The property passed inspection, the loan was approved and we signed all the closing documents to transfer our house. The buyers were supposed to come to sign the documents and they never showed! The next day we received a letter from their lawyer saying we never had a contract to begin with, the loan wasn’t approved and that we didn’t sign the deed on time. The buyers are demanding all of their money back or they say we will have to go to court. Should we give it back?
– Mary L.
Answer: The answer to your question will depend on the specific facts in this transaction. Generally, if you met all of your obligations in the contract, and there are no contingencies that would allow the buyer to keep their deposit, you should get it. The law firm holding the escrow deposit will not send these funds out until you and the buyers reach agreement. Considering the loan was approved by the buyer’s bank and they did not object to inspections, it is likely there are no contingencies that would allow the buyer to back out. If an agreement still cannot be reached, these cases generally go to mediation first, which gives the parties the opportunity to meet face to face and attempt to resolve the dispute. In mediation, there is no judge, and no requirement that agreement be reached. The next step would be to go to court. In most real estate contracts, attorney’s fees and costs are payable to the prevailing party, but judges have discretion in how much in fees are reimbursed.
Hopefully you can reach agreement on how the $10,000 will be distributed. If you cannot, seek professional assistance from an attorney to represent your interests. In the meantime, good advice to all sellers like you is to obtain an adequate deposit from the buyer that will compel the buyer to purchase the property, rather than lose their deposit on default.
Eric P. Feichthaler has lived in Cape Coral for 27 years and graduated from Mariner High School in Cape Coral. After completing law school at Georgetown University in Washington, D.C., he returned to Southwest Florida to practice law and raise a family. He served as mayor of Cape Coral from 2005-2008, and continues his service to the community through his chairmanship of the Harney Point Kiwanis Club KidsFest, which provides a free day of fun and learning to thousands of Cape Coral families, and funds numerous scholarships. He has been married to his wife, Mary, for 13 years, and they have four children together. Recently, he earned his board certification in Real Estate Law from the Florida Bar. He is also a Supreme Court Certified Circuit Civil Mediator.
This article is general in nature and not intended as legal advice to anyone. Individuals should seek legal counsel before acting on any matter of legal rights and obligations.