Earnest Money!!!!???? - Posted by tjames

Posted by E.Eka on November 28, 2003 at 08:14:20:

I was a little late to respond but what Brent said is correct. Consideration has to be given for the contract to be valid. Correct terms and all. As with regards to it being placed in Escrow, that’s a different story. As you know it doesn’t necessarily have to be placed in escrow as you normally could give consideration to the seller. However it should be placed in escrow because the seller can run with your money regardless of what happens. THe escrow insures that it is held by a third party. In essence being held safely until contract requirements have been fulfilled. As for seeing it with your own eyes, you should try to find the statutes of common law of contracts in your state. Which is similar to the UCC (Uniform Commercial Code - for the sale of goods). Contract law states that, period.

Common law also provides the statute of frauds that states (in a short version) that the following contracts have to be in writing in order for them to be enforceable:

  1. Marriage (pre nupts and other marriage contracts)
  2. Contracts that will take longer than a YEAR to perform
  3. Contracts regarding Land or Real Estate
  4. Executory contracts, trustees etc.
  5. Goods over $500 and/or specifically modified goods
  6. Contracts regarding Suretyship (co signers, guarantees etc.)

My point is, it’s not so much real estate law as it refers to “contract law” which is important when buying real estate.
Call ANY attorney and they’ll gladly show you their law books. As a matter of fact, ask Bill Bronchick.

That’s not my honest opinion, it’s a fact.

Earnest Money??? - Posted by tjames

Posted by tjames on November 26, 2003 at 13:52:59:

I have a problem…We want to purchase a bank owned house, they will not even look at our offer untill we put up $1,000 for earnest money!!! This doesnt seem fair. At xmas time we just dont have it laying around. Any suggestions???

Re: Earnest Money??? - Posted by Tjames

Posted by Tjames on November 26, 2003 at 22:46:04:

GEEE thanks for the advice. We have our earnest money I just thought there were creative ways around having to give it up!! I really dont think I was WHINING, can I have my head back now???

Re: Earnest Money??? - Posted by Clair-MO

Posted by Clair-MO on November 26, 2003 at 17:47:53:

Frank stated “There is no legal requirement for earnest money or a rental deposit on an apartment!” If there isn’t a legal requirement “why” should you have to put anything down as earnest money on an REO?
What you can do is substitute anything you might have of equal value! If they are insisting for money, go to a credit union and borrow a $1k for the project. Find out who you have to close with banker or title company give a title on a vehicle to hold onto as the earnest money. Blow their minds by doing the unusual!!!

Re: Earnest Money??? - Posted by Nate(DC)

Posted by Nate(DC) on November 26, 2003 at 15:46:35:

Why don’t you wait until January, when you have some money. At that point, if it was a really good deal, some savvy investor will have bought it and you can spend the next 11 months complaining about how it was unfair only to have it happen again next Christmas.

NOTE: The above is tongue in cheek, but I’m trying to make the point that you are only “stuck” if you believe you’re stuck. The obstacle is YOU, and your attitude and priorities, not money. If you choose to spend the money on Christmas gifts, instead of investing, that’s your right. But don’t come on here and complain about how it’s unfair. What would be unfair would be expecting you to have the same opportunities as someone who has scrimped and saved all year to put aside that extra $1000 to invest…or who has decided to forego the expensive gifts this year to invest in something for the future. We are all responsible for our selves and our own decisions.

Now, if you really want to do this deal, I know there is a way you can come up with the $1000 to do it. In fact, if you search the archives here you will probably find a post (I think by Jim Kennedy?) about ways raise money to do a deal when you think you have none.

Now get out there and do it…or don’t, but either way, don’t whine to us.

Good luck,

Re: Earnest Money??? - Posted by Frank Chin

Posted by Frank Chin on November 26, 2003 at 15:07:06:


As a REI, I’ve sold properties where folks provide earnest money deposits, and rent out apartments, where folks provide “deposits” to hold apartments.

There are no legal requirements for earnest money or apartment deposits. I haven’t had an earnest money issue with selling properties yet, but in rentals folks give me sob stories why they can’t come up with rental deposits.

But just like you should show up at a dinner party with your best suit, there’s no legal requirement that you can’t come with your T Shirt and Jeans. You just want to make the right impression.

When I was a rookie landlord, I fell for the sob stories. But years of experience and showed me that someone who’s $1,000.00 short on a deposit, will always be short.

Now, banks with REO’s to sell deal with folks with money problems at the time. Perhaps the reason they heard about why you can’t come up with the earnest money is an excuse that just sounds too familiar.

Now, one experienced rehabber mentioned he gives a low ball offers, but attached a extra large earnest money deposit, like $5,000 to $10,000. It’s his way of saying that I got the dough to complete the transaction, unlike those jokers providing $100.00 checks, or just give lame excuses why its unfair.

“It’s Xmas time” is a pretty lame excuse. You knew Xmas is coming one whole years since the last one.

Frank Chin

Hmmmmm: xmas gifts vs RE investment? - Posted by IB (NJ)

Posted by IB (NJ) on November 26, 2003 at 14:27:34:

How about returning some of the gifts and getting a cash refund? Then put the cash refund ($1000 worth) down as the earnest money.

This might be an issue with PRIORITIES, nothing more.

Re: Earnest Money??? - Posted by E.Eka

Posted by E.Eka on November 27, 2003 at 24:23:58:

The bank has already dealt with jokers and deadbeats. They want earnest money to offer assurance that you’re really interested in the deal and that 1) you have the money to close and 2) you have something invested in the deal incase you decided to walk away after a contract is ratified. Earnest money can be as little as a penny or as much as $1 million!! It all depends on how much the buyer is willing to put up and how much the seller is willing to accept. All I know that for a contract to be considered in real estate, there has to be earnest money involved.

Re: Earnest Money??? - Posted by Clair-MO

Posted by Clair-MO on November 27, 2003 at 08:34:37:

Eka, I do understand the reason for the bank wanting the earnest money, it is as you said,“To make sure you will go through with the deal!” But what I was suggesting was a way to get around paying it. I have done it myself and I’m not a joker or crack-head with working with realtors and bankers, the point I was making was there is no legal requirement by law that states that a person must put anything down!!! The banker is the one who is stating their WANTS not their NEEDS to make this transaction to work for the benefit of the buyer. The banker is requesting $1,000 as earnest money but like you said “You can give them a lesser amount to make a contract legal.”
If you can substitute something of equal value for the earnest money the closing company will be happy as a lark! So what I have done in the past, I went to the closing company or title company with a car title that I put as collateral same as earnest money. See my point? To every problem, there is a solution! If the banker isn’t willing to accept the car title then I would personally ask him “How badly do you want this home off of your books?” Because when an examiner come around and sees a REO on the bank’s books the federal government stiffly penalizes the bank. Did you know that?

Re: Earnest Money??? - Posted by E.Eka

Posted by E.Eka on November 27, 2003 at 21:09:42:

"the point I was making was there is no legal requirement by law that states that a person must put anything down!!! "

Actually you’re wrong. In order for the contract to be enforceable, there has to be some money put down. It’s up to the parties involved to determine what amount is sufficient. It could be 1 penny or $1 million. but either way, there has to be some money put down. That’s all i was saying. If a bank is willing to do something creative, then so be it. My point is, if you walk away from a ratified contract, I’m pretty sure that the bank is not interested in attaching a lien for $1000 to your car.

And regarding whether or not I know that a bank gets penalizes for having REO on it’s books. I’m an investor, well read and not a newbie. I’m pretty well aware of all that. THanks for asking.

Re: Earnest Money??? - Posted by IB (NJ)

Posted by IB (NJ) on November 29, 2003 at 07:53:56:

In NJ, earnest money is not a requirement for a contract to be valid. I remember attending an REI seminar where the speaker swore that earnest money was a requirement all over the country. However, upon arriving home to NJ and speaking with my attorney, I learned that in NJ, it only serves as a requirement should it be written in the contract that the seller requires earnest money. I’ve yet to put down 1 red cent of earnest money from the FSBO’s I’ve purchased. Of course, the banks here do require it.

Re: Earnest Money??? - Posted by Brent_IL

Posted by Brent_IL on November 28, 2003 at 01:07:55:

As you know, there has to be consideration for a contract to be valid. Consideration can be cash, of course, but the mutual exchange of promises is also valid consideration, albeit cashless.

The question of whether someone or some entity will actually consider an offer that doesn?t include an earnest money deposit or offers non-cash consideration is situational. I rarely make cash earnest money deposits when contracting with individual sellers, but a bank sure won?t consider my offers on REO without some kind of cash deposit.

In a previous thread, I said that I recall that one or two states had statutes that required a cash consideration for a RE contract to be a minimum of ten USD. I searched for a few weeks to find at least one of those states, but I was unsuccessful. I still think that I didn?t make it up. Many contracts continue to read, “Ten Dollars and other valuable consideration.” Sooner or later, I?ll come across the information.

Re: Earnest Money??? - Posted by Clair-MO

Posted by Clair-MO on November 27, 2003 at 21:57:46:

Thank you for your reply, Eka! I’m not up todate in my real estate law as you are, but I would like to read where it says that the contract is legally binding because money has to be placed in escrow. I am not trying to be smart with you but for my own mind, I would like to see with my own eyes,where it reads that one has to put down money to make the contract legally binding, fair enough! Then I will admit that I was wrong in my thinking because I wouldn’t want to deliberately cause any beginners to go down the wrong path in this business, if you understand what I mean.