Buying a home? Avoid risking your earnest money deposit.

Throw cash away
Throw cash away

Reader Question: We sold a home in Feb 2013. We received a pre-approval letter from the buyer’s lender in March. Because of the buyers pre-approval, we went out and purchased a home and put a $5,000 deposit down. The “old” home sale did not close on the designated closing date because the lender dragged their feet looking into their financial standing. The “new” home was to close a few days later. Because it did not (we needed the money from our closing), the sellers of this other house said we were in breach of contract, took back their home and kept the $5,000 deposit. Is the lender responsible because of their pre-approval? We would like to recover this $5,000 deposit. We are both seniors on a fixed income. Not wealthy. Any suggestions on how we can recover the deposit? Jim D.

Monty’s Answer: Hello Jim, and thanks for your question. While it occurs more often than people realize, it is disturbing to hear about people losing deposits. Initially, contact your attorney to receive a professional opinion based on the contract signed with the seller. The information provided here is helpful, but I am not an attorney, and the rules on deposits vary from state to state. I do suspect your attorney will say the lender is not responsible for the loss of your deposit, but I am unsure what his advice will be regarding the seller keeping your deposit.

The real estate agent’s a candidate.

Was there a real estate agent involved? If they wrote a contract that was not “subject to the closing of your current home,” a source of re-payment may be from the agent and the agent’s broker. Whether the agent was representing the seller or a buyer’s agent, there is a legal obligation to treat both parties fairly. A consumer may not be expected to know that a pre-approval letter is not a loan commitment, but a real estate agent would be expected to know it.

If the transaction took place with no help from a real estate agent or attorney, unfortunately, there is no one else to blame here but you.

The second time around.

If your buyer has a well-written “subject to financing” contingency and has a deposit on your home, keeping their earnest money is not an option. It is possible your buyer may not be able to complete the transaction. If that is the case, is it possible to sell your old home for $5,000 more the next time? Real estate transactions “crater” all the time. The home will sell for more, or it will sell for less, but rarely will it sell for the same amount as it did the first time. The market is bouncing back in many areas of the country and lenders are less frightened than they were earlier this year. It could be the “second time around” will produce better results.

The second, second time around.

When your old home is ultimately sold, try to repurchase the same home for $5,000 less than the first time. While it may no longer be on the market if it is, the seller may be having second thoughts about dumping a buyer so quickly if their motive to sell is strong and they have not been able to replace you.

A Real estate transaction is a complex and volatile business process with many moving parts that can wreak havoc on the participants, seemingly from out of nowhere. Check out the articles on Dear that will help avoid surprises like the one just encountered. The link to the index is Scroll down the list of articles to see if any of them catch your attention. In particular, the article titled “Home buying and selling contingencies” may help prevent a re-occurrence of another contingency incident on your next purchase.

I hope this information is helpful, Jim. Ask if there are other questions.


Richard Montgomery







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