Earnest Money Deposit Recovery
Sellers of several of these new condo projects are currently advising buyers they need to arrange for their financing, schedule a walk-through inspection of their soon-to-be completed unit and prepare to close and take possession shortly. Unfortunately, due to CoVid-19 and shutdown orders, many buyers have found themselves unemployed or their businesses struggling, if not shutdown, and unable to secure financing for their purchases. Additionally, their life situation may have also materially changed from two or three years earlier, as a result of divorce, births, deaths, or job transfers. These buyers have put down deposits in the tens of hundreds of thousands of dollars, which sellers may be advising them are “forfeited,” when buyers may in fact be legally entitled to their return.
Condo buyers that have decided they no longer wish to move forward with their purchase, and have requested their deposits be released by escrow and returned to them, have a few immediate steps. The following should be done as soon as possible by any buyer who cannot...
More About Earnest Money Deposits
Condo buyers have tried to explain to the sellers their changed personal situation, and have requested their deposits be released by escrow and returned to them. Sellers are, without exception, refusing to do so based on the language in most purchase and sale agreements that provides for that the seller can keep the buyer’s deposit as liquidated damages or a forfeiture. For many buyers, this comes as a shock, or simply wrong, but they are not sure whether they can do anything about it legally. Fortunately, the answer is that they may have a legal right to demand the return of their earnest money deposit, possibly including interest and their legal fees.
Unlike the “typical” residential transaction involving the purchase of existing homes, the sale of a to-be-built condominium occurs years prior to the actual closing of the sale. The sale usually occurs prior to even groundbreaking for a project that will take up to 2 or more years to build.
The developer or seller of the condo project requires the buyer to sign a purchase and sale agreement and pay an earnest money deposit, usually equal to five to 10 percent of the purchase price for the condo. Sellers are required by the Washington Condominium Act to provide to all buyers a Public Offering Statement that details all material aspects of the project, the contents of which are specified in the law. The seller must update the statement as events affecting the project occur through an addendum.
All EMDs are required to be held by an independent escrow agent until the transaction is closed or terminated by agreement of the parties.