Posted by JPiper on November 28, 1998 at 15:13:11:
First, I?d like to discuss this situation from the standpoint of the buyer. As a buyer you owe it to yourself to gain the knowledge necessary to protect yourself in real estate transactions. If you don?t have the knowledge seek out competent advice. It?s a cold world sometimes, and there are people who are willing and able to screw you.
As a buyer, perhaps rule #1 is?..DO NOT give the seller any money UNTIL the conditions of the contract have been met. Rather, deposit any earnest money in an escrow account held by a neutral third party such as a title company, an attorney, or an escrow company. Make certain that your purchase agreement references this money, where it is to be held, and the conditions specifying it?s return. Typically this money would be turned over to the seller when the conditions of the contract have been satisfied, and the seller simultaneously executes a deed, or some other instrument evidencing your interest in the property.
Some of the things that you would want to verify prior to closing and the release of your money to the seller would be the condition of the title, the status of any existing loans that you will assume or wrap, and the condition of the property. In the case of a contract for deed, as the buyer you would want your attorney to take a look at the language in the contract so that you understand it?s implications. You would also want certain safeguards built into the transaction, like perhaps a performance mortgage recorded against the property, perhaps an executed warranty deed to be held by a third party escrow agent, a plan as to how your payments will be handled and the underlying mortgage paid (a collection account). IF ANY of these steps are short circuited you will take on an unacceptable risk in the transaction.
An example is this particular type of seller. First, she is given money upfront before the underlying loan is verified?.and then uses the money for her personal purposes. She then is unable to perform on the contract, and is unable to return the money to the buyer. The buyer is left s u c king their thumb. But even if that had not been the case, would this seller have received the payments on the contract for deed, and then made the payment on the underlying loan?? Good luck. It looks to me like when the seller has a need, the seller takes care of that need, without any regard for what her agreement may have been. Would the seller have had other financial problems during the period of the contract?? Would these have resulted in judgments, or an inability to transfer title at the completion of the contract according to the agreement?? Who knows?? One thing we know for sure, if you?re COUNTING on the seller to perform, you?ve taken an unacceptable risk, and that risk can easily result in a consequence that this buyer is now experiencing.
As to advice to the seller in this situation. My advice would be to honor your agreement, one way or the other. Get the $7K from someone else and give it back to the buyer. Short of that I have no sympathy or respect for the situation that you are responsible for. At a minimum you have breached your contract. I would also wonder if you are guilty of fraud?.but I will leave that determination to the attorneys.