HELP!?!?! - Posted by brian

Real Estate Investing
1

Posted by Tom(Dallas) on December 04, 2001 at 10:17:43:

If I were an attorney, I would advise my client to return the money. Trying to hold onto it would only cost time and money. Time better spent working on deals instead of in the courtroom. Money on the attorney that a judge could arbitrarily decide didn’t need to be covered by the Buyer. It would be a complete can of worms.
The only other thing I would add is that sometimes lessons(not getting it in writing) come with a pricetag, and even though the client might feel injured, not all injustices are righted.
But that advice would actually be personal, since I believe attorneys are mainly for supplying information for the client to make an informed decision. While I don’t see anything wrong with a lawyer giving advice, it is only that, advice. I believe people should take responsibility for their own actions and in making their own decisions. Advice can be a two-edged sword. I only supply my opinion so that anybody reading can make a more informed decision. If I let someone make a decision for me, then I am absolving myself of resposibility and should not be unhappy with whatever the outcome. In no way would I say ‘You need to follow the comments I have made here’. And I would not take it personally if he decided otherwise. And I would not think differently if the outcome was different than I predict. I am still responsible for my decisions and that is how I look at things. Finally, that is not to say that I am not open to new or different ideas. It’s just that almost everything is by the numbers, the odds for and the odds against. I can chose whichever way I want to go. I am aware that the odds may be against a certain outcome but that it may still happen. It doesn’t mean that that the exception becomes the rule.
I hope I haven’t fallen into the mire of ‘Where do babies come from?’ and the answer ‘the Hospital’ would have sufficed.

2

HELP!?!?! - Posted by brian

Posted by brian on December 02, 2001 at 10:40:08:

i have 2 properties for sale at 65k each (priced about 10k under market) an out of state buyer came, looked, and liked. at the same time there were another group of people looking who were preapproved.

he jumped the gun, gave me a $2500 deposit each and at the bottom of the check was written “920&922 N. benson street at 65k each”. i deposited the check. now he wants the money back!

a week later he wants out of the deal because he didnt like the interest rates and was unsure about what he could get for rent on the properties. and wants his deposit money back.

by him not doing his homework first he cost me 2 sales to preapproved buyers (that were looking at the properties the same time he was) and he cost me a lost of advertising time.

SHOULD HIS DEPOSIT BE REFUNDED OR NOT?

(there was no actual other than the check because he was unable to get back to town before he found out about the financing interest rate which was roughly 9%)

3

Re: HELP!?!?! - Posted by John - CA

Posted by John - CA on December 04, 2001 at 17:56:05:

So what was the resolution Brian?

4

Re: HELP!?!?! - Posted by SCook85

Posted by SCook85 on December 03, 2001 at 17:04:43:

I’m with Kevin on this one. It isn’t worth the frustration. If you had other buyers lined up, the property is obviously desirable. I would give the money back and sell to someone else. If you end up in court fighting over it, you could tie the property up in court for an extended period of time and not be able to sell.

If you always claim that the earnest money was for a legitimate contract and then you sell the property to someone else you have a real problem on your hands.

Give the money back, I’ve done it before and it has always worked out for the best.

Steve

5

Re: HELP!? - Ok, What are you going to do Brian? - Posted by Tim Fierro (WA)

Posted by Tim Fierro (WA) on December 03, 2001 at 10:09:21:

Ok Brian,

You have heard what others think on this issue, have you heard enough to make a decision on which way you are going to proceed?

6

Partial Refund - Posted by Bart (FL)

Posted by Bart (FL) on December 02, 2001 at 20:32:20:

Brian:

Call the buyer and tell him you incurred expenses.

If it were me I would tell him $500 was fair and I would send him back the balance after he signed a release.

Bart (FL)

7

Re: HELP!?!?! - Posted by Kevin Subbert

Posted by Kevin Subbert on December 02, 2001 at 18:32:25:

Brian,

Forget about the verbal contract and give him the money back. Its only $2500, its not worth the time or the frustration. Just refund the money and spend your time trying to find another buyer. In the long run you will be glad you did.

Kevin Subbert

8

Re: HELP!?!?! - Posted by GL

Posted by GL on December 02, 2001 at 15:26:10:

If you think he may sue or try to get the money back you should sit down and write out your fullest recollection of the transaction from start to finish. These notes will be your evidence. Also any other evidence you may have.

If he threatens to sue, explain that you had a deal and he welshed for no reason. Interest rate too high (at today’s rates??) and he didn’t know what he could get for rent (so what?). Those are very weak, and besides they aren’t your fault. You can’t do anything about them. And unless you guaranteed a certain rent or interest rate they are not your responsibility.

If he tries some phoney story, point out that he has no proof that he ever gave you anything except his cancelled check. If he goes to court you will make him prove it by showing the check to the judge, and it says on the check that it is for a deposit on real estate. You can then prove that no transaction took place. After that it’s your word against his. And judges aren’t as dumb as some people think when it comes to telling truth from lies.

9

Keep the money. - Posted by GL

Posted by GL on December 02, 2001 at 13:11:24:

You made a deal. You lived up to your end of the deal and he backed out. You are entitled to the money.

There is only one question. Did you tell him before he gave you the check that he could have his money back? If the offer was conditional on financing or some other condition, and the condition was not met, then he has an escape clause but ONLY if you agreed to it beforehand.

Let me ask you this. If he found out they were $10,000 under market value and you had a good offer for more money than he was paying, would he have let you out of the deal so you could take the better offer? Not likely. A deal is a deal.

By the way you had a contract - a verbal contract. There was an offer, an acceptance, a consideration. That’s a contract whether it is written down or not.

I have been through this kind of thing before. I wouldn’t give back the deposit and I wouldn’t ask for it back if I were him.

10

Re: Yes, refund the deposit (NT) - Posted by Ed Copp (OH)

Posted by Ed Copp (OH) on December 02, 2001 at 12:44:09:

8

11

Left out one key point… - Posted by JT - IN

Posted by JT - IN on December 02, 2001 at 11:28:29:

Most states require RE contracts to be in writing. If this is so in your state, and you have no contract, you have no RE deal; period. You are in possession of $ 2500, but it would not be earnest money, absent a RE contract. What is the $ 2500? A gift, a loan, a mistake. Probably the latter, as would be seen in the eyes of a judge.

JT - IN

12

Re: HELP!?!?! - Posted by JT - IN

Posted by JT - IN on December 02, 2001 at 11:01:46:

Brian:

Best to have a contract that covers this issue up front. However, the one that is really hangin out here, is the buyer. He was downright idiodic to give someone an earnest $ deposit, w/o details of it’s application, etc.

Possession is nine tenths of the law, as has been said many times. If he were to pursue this legally, he would likely prevail to have the funds returned, (my opinion), absent a contract that states the $ would be forfeited, if he didn’t perform. He would need to take legal action to force you to do anything. Maybe you could negotiate a settlement with him, after discussing the costs, etc. Let him know that you may not refund any, and maybe he will be more willing to concede some of the money. Before returning any, or all to him, make sure that you have a written agreement, (release) signed by him, and witnessed by two people, or notarized, that states the precise agreement, what is being refunded and what is being forfeited, etc.

Next time, have an agreement in writing that addresses the handling of earnest money. This may save you some distress.

Just the way that I view things…

JT - IN

13

Re: HELP!?!?! - Posted by Tom(Dallas)

Posted by Tom(Dallas) on December 02, 2001 at 11:00:38:

Is there a contract? If so, what does it say about contingencies and earnest money? If not, what are the state laws regarding verbal agreements?

14

Re: HELP!?!?! - Posted by Tim Fierro (WA)

Posted by Tim Fierro (WA) on December 02, 2001 at 10:56:21:

… (there was no actual other than the check …

This leads to me to mean you had no contract? Without a contract, you will probably need to give him his money back.

But I am sure if he was from out of town, you had him sign a contract since he was there in person. You will need to review the contract you have with him to see what it says about earnest money and who gets it should the ‘buyer’ default. If it is a contract you use all the time, then you will know the answer.

15

Re: Great fairy tale. - Posted by Ed Copp (OH)

Posted by Ed Copp (OH) on December 02, 2001 at 14:32:45:

Now GL, everything that you post may be true BUT, as you know a verbal contract is not worth the paper that it is (not) written on. That said the only question is, can you prove it in court? The answer is obviously NO.

So it is logical that the purchaser (victim) will sue in court and since no contract can be proved he will win. This is a good thing too. Since some folks are tempted to shade the truth especially when there is money involved.

Now there is a solution to this kind of sloppy immitation real estate transactions. There are folks in the marketplace who bring buyer and seller together. They have offices, and they use contracts that are written down on payer, and they do stand up in court. Oh yes they do also charge a commission too.

Now in this case the sloppy, perhaps incompetent seller (REI) did save the commission. Too bad that he lost the deal. If he is stupid and greedy enough to keep the money (there is that word again) he can also expect to go to court, where he has not got a prayer because he can’t prove he has a contract.

16

Re: Great fairy tale. - Posted by GL

Posted by GL on December 02, 2001 at 15:03:56:

All I have to go on is Brian’s story. If he is telling the truth then he does have a legal binding contract even though it is not written down. A contract does not have to be written down in order to be legal, however it is difficult to enforce if the 2 parties tell 2 different stories.

In this case I don’t think the buyer could win a suit. He wrote on the check that it was for a deposit on a real estate transaction. Now how is he going to stand in front of a judge and say I put that money down to buy the property then changed my mind, for reasons that were no fault of the seller? If I were the seller I would claim the money as liquidation damages. Furthermore if the buyer sued me I would sue him back for specific performance and damages. Then I would drop the suit in exchange for him dropping his and leaving me the money.

Let me ask again. Suppose the shoe were on the other foot? Suppose the seller said I have a buyer who I like better and is willing to pay more money, how about we cancel our deal? Do you suppose he would take back his check and drop the matter for nothing? I think not. Brian committed himself to the deal and turned down a better offer that came in later, and lost that opportunity. That is what the seller bought with his deposit - the right to buy the property. If he changes his mind he is lucky to get off with only losing his deposit.

You are also quite right that this is a lesson not to do things in such a half assed hit or miss fashion. I shivver and shudder when I read on this board, some of the deals people commit to without understanding them or consulting a lawyer.

17

Re: Great fairy tale. - Posted by Tim Fierro (WA)

Posted by Tim Fierro (WA) on December 02, 2001 at 15:47:28:

As someone stated in this thread, possession is 9/10ths. If the seller keeps the money, the out of towner is the one who will have to take it to court. Meanwhile the seller gets full use of this money. Should it get to court, the actual settlement can vary from seller giving the money back, seller keeping it all, or seller giving only partial back and keeping the rest as liquidated damages. To get to that, the judge would be the ruling party. If the seller’s area has long backups on small claims cases, he could be using that deposit money for a while.

I like the idea of keeping the money; but I wouldn’t feel right without the contract to back it up or very comfortable with my oral contract with the buyer. However I would make the out of towner take me to court on the issue and use the money as I wanted since it was a buyer’s default. None of us were there for the oral contract to take place and the suggestion to write it all down now is very prudent in case it does go to court.

18

There is a written contract. - Posted by GL

Posted by GL on December 02, 2001 at 16:07:43:

You are all overlooking that there is a written contract, signed by both parties.

The buyer wrote out a check for $5000. On it he wrote “920&922 N. benson street at 65k each”. Then he signed it. Then Brian endorsed the check and cashed it.

So here we have a piece of paper which contains the description of the property, the price, and the deposit. It is written in the buyer’s hand on his check and signed by both the buyer and the seller. The seller then cashed the check.

This proves that there was an offer, an acceptance, a consideration and a meeting of the minds. Based solely on that check the judge can only conclude that there was a contract for a real estate transaction.

If the buyer comes into the courtroom claiming his $5000 back Brian is entitled to say “Prove that I owe you that money. I don’t have to say I do or I don’t until you show some proof.” As soon as he shows the check he is done for. If he refuses to show the check he has no case.

Now the buyer can either put up or shut up. If he says he wants the property let him sign a contract based on what he signed - an all cash deal for $65,000 each. If he refuses then that’s all she wrote. He has refused in front of a judge to complete the transaction and the seller can claim liquidation damages.

19

Re: There is a written contract. - Posted by JohnBoy

Posted by JohnBoy on December 03, 2001 at 02:37:45:

Here’s another thought.

The buyer goes to court. He claims he paid the seller $5k and wants his money back, claiming they never had a written contract. The seller says prove your case, you did not give me anything! The Judge asks for proof of the $5k that was given to the seller. The Buyer fumbles around through his stuff saying, “I have a cancelled check here somewhere. Then says, I know I have it but I just can’t find it at the moment”! The Judge turns to the seller and asks, “did the plaintiff give you $5k as a deposit on something?” What does the seller say at this point??? Yes, he did OR lie and say no he didn’t???

If he says yes, then he has admitted to getting the $5k for a deposit on buying the property. The Judge asks if they have a written contract? NO! Sorry! You have to give the money back! It doesn’t matter what you verbally agreed to, all real estate transactions MUST be in writting to be enforceable, period! So you’ll have to give the plaintiff his money back! Next time, put it in writing!

If he LIES and says no, he didn’t give me $5k, the buyer then says, oh, here it is yer honor! I found it, this is the cancelled check. The seller just committed perjury by lying if he denied ever getting the $5k! If he admits it when asked by the Judge, then cancelled check or not, the money will have to be paid back!

So depending on how sharp the buyer is, this could all back fire on the defendant in the end! Even if it didn’t and the buyer produced the check up front, I doubt that would be enough to be binding as a written contract! Of course, you could certainly go to court and argue it with the Judge that that is a written contract, but chances are in favor of the buyer getting the money back. It will cost the seller court costs if he loses the case. So whether all this is worth going to court and risking more money out your pocket for court costs if you lose, is something the seller needs to decide.

I think offering a settlement by deducting for some cost inflicked on the seller would be the best bet to get the matter resolved quickly and put this behind you! I would say $500 - $1000 would be reasonable and that could be an incentive for the buyer to go along with that or wait several months to get anything back at all by having to go to court! Get NOTHING now and sue me for your money back and IF you win it will be months before you get it, OR, settle for $4k back NOW to cover my losses over you backing out and we’ll put this matter to rest! What’s it gonna be???

20

Re: There is a written contract. - Posted by JohnBoy

Posted by JohnBoy on December 03, 2001 at 02:08:38:

The problem here is that anything pertaining to real estate must involve a written contract to be binding. There is no written contract.

You say their is a contract which is the check since it is written on the check 920 & 922 N. Benson Street at $65k each.

What does that prove? Nothing! It doesn’t address anything about the deposit. Is it refundable or not? It doesn’t say.

The other question is, where on the check is this written? On the front in the memo section OR on the BACK of the check where the check is endorsed?

If it’s on the front in the memo part then that means nothing is not binding. In order for anything to be binding on the check it needs to be written on the back side of the check where the check is endorsed. Endorsing the check with everything written on the back side is binding, but not on the front side.

The maker can argue anything as to why he wrote something in the memo section. That is for the makers purpose of making a memo to him/herself, not for binding agreements.

If you have ever seen a settlement check from an insurance company or some offer sent in the mail where they give you a check to cash you would notice all the terms involved with excepting the check are written on the back side, right below the section where the check is to be endorsed. Endorsing the check makes those terms binding. Anything written in the memo is basically worthless!

The memo section would acknowledge their was some sort of an agreement made, but only a verbal agreement. All real estate transactions MUST be in writing to be enforceable and any proof of a verbal agreement is unenforceable without it being in writing.

If this went to court I would bet the court would rule in favor of the buyer getting their money back! Just an address and a dollar amount isn’t enough to hold up as a written contract made out on a check, especially if written in the memo section on the front of the check.

Anything written on a check needs to be written on the back side of the check to be enforceable as part or all of a written agreement. Then by endorsing the check and cashing it would bind the agreement.

I’ve seen things like this argued in small claims several times in the past where something was written in the memo part on the front of the check. In every case the Judge said in order to be binding and enforceable it had to be written on the back of the check where the part endorses it. And these were cases that didn’t involve real estate, which must be in writing to be binding! These were cases involving personal property that only needs to be proven in court and doesn’t require a written contract IF you can prove your case!