A prospective home purchaser is generally entitled to receive a refund of their contract deposit if the sale is cancelled for reasons other than the purchaser’s fault. An example is the denial of the mortgage application as a basis for cancelling the contract. If the purchaser cooperates fully with the lender and is still turned down for the loan, then the deposit should be refunded. However, where for example the purchaser withholds needed documents from the lender in order to obtain a denial because she has changed her mind and no longer wants the house, the purchaser may not get the deposit back. Generally, the purchaser is able to cancel for reasons that are outside his or her control. Each case is always fact sensitive.
An interesting scenario recently arose in which I was asked to help. The purchaser, represented by other counsel, received a mortgage approval. Then after the title search was received and reviewed, it was discovered that someone had obtained a default judgment against the purchaser without his knowledge for $1 million. It turned out that the judgment creditor had improperly effected service of process by mailing the summons and complaint to the wrong address. The purchaser never received those papers and never received notice.
The seller’s attorney took the position that the purchaser must have known about the judgment due to its size and criticized the purchaser for proceeding with the transaction when he clearly was not qualified to buy the home. The seller refused to release the $10,000.00 deposit.
The purchaser retained me and after forwarding a very strong letter to the seller’s attorney, I received the deposit check within a few days, which I happily forwarded to the purchaser.
In a similar situation a year or so ago, I was able to persuade a national home builder to release a $100,000.00 contract deposit to a home buyer where the builder had convinced the buyer to add so many extras to the home construction that the buyer was unable to afford the house or qualify for the needed mortgage. The buyer’s situation was aggravated by an unexpectedly low sale price on the buyer’s existing residence. The buyer had received an initial mortgage commitment for an amount that proved to be insufficient.
In both situations, I was able to secure the release of the deposit promptly and without litigation. Knowing what to say based on past experience and knowing how to say it can make all the difference.