Buyer Can’t Get Financing: Now What?
RE Q&A: Can the seller keep the deposit, since there is a signed contract? It depends on the financing section of your contract, timing and other specific details.
FORT LAUDERDALE, Fla. – Question: We recently signed a contract to sell our home. Yesterday, our real estate agent told us the buyer was canceling because they could not get financing. We feel we should be able to keep the deposit because we denied other offers for this one and wasted more than a month. Do we need to return the deposit? — Jacques
Answer: When a seller and buyer agree on the terms of a home sale, they have to follow those terms. This is why reading and understanding anything you are asked to sign is so important.
While every contract has unique terms, they have much in common. The buyer will put up an earnest money deposit, and if they breach the contract later, the seller can keep that deposit.
This is called “liquidated damages,” which is an agreed amount to the seller for the time and costs of the failed attempt.
Because there are many uncertainties for a buyer in a purchase, the contract will have some “contingencies” or factors that let the buyer cancel the contract and get their deposit back.
The two most common contingencies concern the property’s condition and the buyer’s ability to get a loan. If the contract has these contingencies and the property is in worse condition than expected, or the buyer fails to get a loan despite trying to do so, the deposit must be returned to the buyer.
Most of the time, this works well, and the property is sold. Occasionally, a problem happens, such as bad inspection results or getting turned down for the loan. In this case, as long as the buyer informs the seller by the agreed deadline, the contract ends, and the deposit is returned to the buyer.
However, there are occasions when a qualified buyer will get cold feet and try to escape the contract without giving up the deposit by fabricating a problem that gets the loan rejected. This is usually done by hiding information from the lender.
To address your situation, you need to review the financing section of your contract. Check if the buyer told you they were not approved by the deadline.
If your contract required the buyer to apply for a specific type of loan, such as a 30-year fixed rate loan, check that they did, as getting denied for a different type of loan could allow you to keep the deposit.
Ask why the loan was denied and if it was intentional, for example, if the buyer refused to provide their tax returns.
If, after all of this, it appears the buyer acted in good faith and told you by the deadline, you should return the deposit. However, if the deadline was ignored or the denial is suspicious, you may be able to keep the money.
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