What is the process of getting earnest money back?

[olea24]

Jurisdiction

California

This is for a family member. Home is in CA in fairly expensive city, even for CA. Several offers, one accepted at above asking. No contingencies in the contract. A few days before COE, buyers have backed out.

Original owners reached out to an acquaintance who is a lawyer for a consultation to better understand arbitration process for recovering earnest money. Earnest money is in escrow. Hope was to recover earnest money, since costs were incurred to move/pack/etc and with changing tides in the market, expect to have to accept a lower offer. Lawyer declined to consult. It's a small town, so through the grapevine it's become apparent the would-be buyers have consulted said lawyer. The earnest money is in the tens of thousands.

Questions are: without contingencies, what could be the reason buyers are lawyering up? I realize this is asking for speculation, but trying to understand if there are scenarios in which a buyer could fight giving up earnest money. Are they trying to drag out the arbitration to try to get original owners to drop it so they can put the house back on the market?

The owners didn't hide anything about the condition of the home. Would-be buyers were planning a major remodel and brought multiple contractors into the home to assess and get estimates. They had seemed ready to follow through until abruptly changing course.

Trying to get a sense of how long this can drag out, and what can be brought up as an issue if the contract didn't have any contingencies. Original owners don't have much in assets beyond this house and would have to scramble to get money for legal fees. Retaining that earnest money might be worth it, but not sure. Another specific question I have is whether the house can be put back on the market if there is ongoing arbitration re: earnest money.

 

[adjusterjack]

My guess is that the buyers are lawyering up because they want the earnest money back and the seller wants to keep it. Make sense?

What will happen depends on what the contract says about the earnest money.

If the seller wants to avoid thousands in attorney fees, he can choose to release the earnest money back to the buyer and start all over in selling the property.

If the seller wants to keep the earnest money, why hasn't the escrow company cut him a check, if that's what the contract says to do?

Suggest to your family member that he hire an attorney rather than call friends or relatives who happen to be attorneys.

 

[Michael Wechsler]

@adjusterjack puts it perfectly about wanting the money back - and to add - trying to recover as much of it as possible. Motives likely include leverage for legal maneuvering. Even when terms of an agreement may be clearly stated, it doesn't mean people will abide by what many may feel is righteous, respectful behavior. It's possible that they may be concerned that the seller might be overly aggressive in wanting a much larger amount than they deserve. When the stakes are in the high five figures and above, retaining an attorney can be a worthwhile investment.

It is impossible to say how long it will drag out. Best to be prepared by compiling all of your expenses and potential losses ready (including estimate resale market value decline due to interest rate pressure, etc.) to keep neogiation short. Being involved in several real estate related property improvements, there are many reasons the buyers may have looked to back out, which can include supply chain issues which their renovators might anticipate encountering. That shouldn't be your problem and your family should be doing the basic homework they need to do anyway in order to ensure a maximum recovery of the earnest money.