Buyer wants escrow deposit returned after seller backs out of deal
Mr. Feichthaler:
I read your column weekly and have taken the information to heart. So, I entered into a contract to purchase a property in Cape Coral with an “as-is” contract, which gave me 10 days for inspection. During that time, you have noted a buyer can cancel for any reason, or no reason at all. Everything looked fine, so we went beyond that date and on to the projected closing date. On the day of closing, the seller advised she would not sign the documents, saying that I offered too little for sales price. She signed the contract, as did I, and the price is at market condition, so she may have just changed her mind, I don’t know.
I asked the title company for my $5,000 escrow deposit back, and they said they cannot provide it without a “Cancellation and Release” signed by buyer and seller. The seller now won’t answer any of my emails or phone calls. Why can’t the title company just give me the money with these facts?
– Corey D.
Dear Corey:
Thankfully, the situation you have described doesn’t happen often, but it does happen. Sellers can back out of deals for various reasons, like an emotional attachment, a change in circumstances, or realizing a negative tax consequence on sale. None of these reasons are a justification to back out of a contract, but sellers don’t always do what’s required.
First, the contract likely gives you the option to seek specific performance from this seller. That is, you can require the seller to sell you the property at the agreed-upon price through a legal action. Your contract likely provides for attorney’s fees to the prevailing party, which may be awarded to you if you pursue enforcement action.
The other option, which it appears you have chosen, is to have a full return of the escrow deposit if the seller fails to complete the deal. However, the way the standard contract is written, the funds cannot be released by the law firm or title company holding the deposit unless a “Cancellation and Release” is signed by all parties. This document effectively ends the contract, provides there is no liability to Realtors (typically) and directs the escrow holder where to send the funds. If either Seller or Buyer won’t sign, the escrow holder has no choice but to hold the funds. Eventually, the escrow holder will typically deposit the funds with the local courts through an interpleader action. This will result in a reduction in the amount of deposit held to pay for the interpleader action. It is always ideal to work out an agreement with the seller, even if it means allowing them to retain part of the deposit. Even though you may be 100% in the right and entitled to the funds, the stress and time to fight over these funds may or may not be justified.
One way to avoid this issue is to add specific language to the contract that requires the return of the deposit in certain situations, like yours. If the contract is clear that the funds can be distributed based on the seller failing to sign, then the law firm or title company should be able to provide a buyer these funds without a seller signature or court proceedings.
Whether you are able to negotiate a good resolution or need to call an attorney to assist, I wish you all the best to obtain your deposit back, or to acquire the property as planned.
Eric P. Feichthaler has lived in Cape Coral for over 35 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 the Cape Coral Caring Center, Cape Coral Museum of History, and Cape Coral Kiwanis. He has been married to his wife, Mary, for over 20 years, and they have four children together. He earned his board certification in Real Estate Law from the Florida Bar. He is AV Preeminent rated by Martindale-Hubbell for professional ethics and legal ability, and is a Supreme Court Certified Circuit Civil Mediator. He can be reached at eric@capecoralattorney.com, or 239-542-4733.
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.
To reach ERIC P. FEICHTHALER, please email news@breezenewspapers.com