(TNS)—Q: I was trying to buy a house, but my loan fell through, and the seller does not want to return my deposit. How can I buy the house if I can’t get the credit?
A: When you sign the typical purchase contract, you and the seller will make the contract contingent on your ability to get a mortgage loan within specific parameters that are written in the agreement, such as the interest rate and the repayment period. You will be allowed a certain amount of time, typically 30 days, to work with your lender to get your chosen loan approved.
If you cannot get it done within this timeframe, you can cancel the contract and get your earnest money deposit back. You can also choose to continue toward closing with the condition that you will lose your deposit if you cannot get the loan in time. If you take this option, the seller gets an opportunity to cancel the contract or trust you to go forward.
In the past, some buyers caught on to the idea that if they wanted to get out of the contract, due to cold feet or finding another house, they could “hack” the deal by being uncooperative with their lender and causing their loan to be denied.
Because of this, most standard contracts were changed to require the buyer to fully cooperate with their lender by timely submission of all the necessary documents like tax returns and pay stubs, and paying all fees required for the application and appraisal. If the buyer cannot document that they made a genuine effort to get the loan, their deposit can be lost.
Regarding your situation, you will first need to check your contract to see the terms of the financing contingency section. Confirm that you notified your seller of the denial by the deadline. Make sure that you can document that you worked with your lender before getting denied.
If you did what was required and the seller is not returning your money due to sour grapes, you may need to take him to court to get your money back. If you have to do this and you win your case, the court will usually make the seller reimburse you for your attorney’s fees. This makes it dangerous for someone not to return a deposit when the contract says to since the attorney’s fees are often more than the amount of the deposit that is being disputed.
Gary M. Singer is a Florida attorney and board-certified as an expert in real estate law by the Florida Bar.
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