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How to Get Your Deposit Back for a Home You Don"t Buy

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You broke escrow for one reason or the other, how do you get your deposit back? I'm limiting this to San Diego because this comes from the California Residential Purchase Agreement.
Although this contract is well aligned with the Real Estate Settlement and Procedures Act (RESPA) this advice should be taken by Californians only.
Now back to the question.
How do I get my deposit back? Well, the short answer is that if the buyer breaks the contract in bad faith, like they found a new house or a better deal, then the deposit may be lost.
If you act in good faith, then you stand a good chance of getting it back without difficulty.
Also, remember that this is not a problem unless the seller wants to hold onto the deposit.
What is Good Faith? In Latin, good faith, or bona fides is a good, honest intention or belief.
In law, it is the mental and moral state of honesty, convictions to the truth or falsehood of a proposition or body of opinion, or as to the rectitude or depravity of a line of conduct.
This concept is important in law, especially equitable matters, and important in real estate.
Keep this in mind.
Refundable Deposits Another thing to keep in mind is that all deposits are refundable.
You cannot make a deposit nonrefundable, but there are certain legal ways that you can get your money back and there are certain legal ways for the seller to keep the deposit.
Paragraph 14 RPA This is the contingency removal section in the Residential Purchase Agreement (RPA).
A contingency is a condition which must be satisfied before the buyer can be required to perform.
In order for the contract to be binding, these contingencies will need to be removed.
During the contingency period the buyer is required to demonstrate commitment to the deal.
If you are still shopping around or do not have the funds to close, you will probably not want to spend money on inspections, or appraisals or otherwise take steps to resolve the contingencies.
This is a tell-tale sign that you, the buyer are not likely to complete the purchase.
Your Realtor will be working with you to have the property inspected, and review disclosures and title reports.
The big contingencies are financing, disclosures, property condition, title approval and (where there is one) home owner association documents.
You typically have 17 days to decide whether you are satisfied with what you discover, and deliver the contingency removal form to the seller.
Likewise, after the contingency removal period has run, the seller can send you a notice to remove the contingencies if you have not done so.
Now, if you are not satisfied that the deal is for you, you have a right to cancel the contract within the 17 day inspection period or when the seller sends you a notice to perform.
The seller may cancel the contract if you fail to respond to his notice to perform.
Paragraph 14(b) is the clause that describes the seller's right to cancel the agreement and requires that the seller authorize the return of the buyer's deposit.
If the buyer removes contingencies, the seller is bound to perform under the contract.
Paragraph 14(a) dictates the time period that the seller deliver certain docs including HOA docs, signed disclosures, TDS, lead paint removal (FHA requires certified lead based paint remediator, investment properties soon to follow).
This time frame is usually 7 days, but if the seller fails to deliver the required documents, the buyer's time to perform is extended by 5 days.
Request for Repairs ("ROR") Request for repairs is a request by the buyer to the seller concerning repairs that need to be made before the conveyance of the property, missing stove, water damage, missing electrical outlets, etc.
Bank owned properties will usually not give any attention to any request for repairs.
Don't expect these on short sales either.
The strategy here is to include a request for repairs is to give the buyer an 'out' to the contract, but again, this 'out' must be exercised in good faith.
Under rare circumstances the appraiser will condition an appraisal based on a repair.
If this is the case, then the bank may do this repair.
Also, if the loan is conditioned on repair, then the bank will probably comply, at least you can make a good argument for it.
Banks typically want 2-3 bids from licensed contractors in before repairing the property.
You are required to act diligently to obtain the financing you are seeking to complete the purchase.
If change your mind about the type of loan, or seek to finance the purchase when you have offered a cash transaction, the seller is not required to cooperate with you, and may be able to put you in default and keep your deposit if you attempt to cancel.
Short Sale A seller receives no money on a property they are short selling.
The damages they are likely to incur, if the buyer fails to perform, are the likelihood that the loan will be foreclosed.
Hence, there are no sure remedies for the seller in the case that a buyer breaks the contract, except for the liquidated damages in the form of the buyer's deposit.
Things you need to keep in mind:
  • Contingency time period begins upon the seller's and the buyer's notification of lender's acceptance of the sale price.
  • Usually a deposit is not required for a short sale until the short sale is approved by the bank.
    The preferred way is that the deposit should be made when short sale is approved, and the usual timeframe is 3 days after notice of
  • Until the bank approves the short sale, the contract is not yet formed because lender approval is a condition precedent to the obligation of the parties to perform.
  • Deposits under $7,500 will subject any legal problem you have to small claims court which will save you both time and money.
So, if you are buying or selling a home, make sure you have a qualified and experienced Real Estate Broker that can help you out.
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