Seller, buyer in deposit dispute

MAILBAG

February 27, 2005

I contracted to sell my condo on December 4, 2004, with a closing date of Dec. 24. The buyer paid a $1,000 deposit to my real estate broker. Within the next two weeks, the buyer obtained a appraisal of the property. It appraised for $11,000 less than the selling price. On Dec. 15, the buyer asked to be released from the contract because of the under-appraisal. I was willing to release the buyer if I could retain the $1,000 deposit. Her loan commitment stated that it was contingent on an appraisal. My real estate agent, and the manager of the real estate office, initially advised me that I was entitled to keep the deposit because the buyer did not have the right to cancel.

The buyer has refused to give up the $1,000 deposit. The office manager now is telling me that I must wait about three months, and if I will not concede ... the issue of the deposit will be turned over to the courts. As of now, the deposit is still in escrow.

I hope you can advise me how to resolve this issue.

The key to your case is whether the buyer had a right to cancel the contract because the property appraised for less than the selling price. If the contract called for the buyer's obtaining a VA or FHA-insured loan, the sales contract is required to include an addendum that specifically states the buyer is not obligated to perform the contract or to forfeit a deposit if the purchase price exceeds the appraised value of the property. Moreover, the standard contract used by real estate brokers in Maryland contains a financing contingency, which makes the buyer's obligation contingent on getting a written commitment for a mortgage loan within a specified number of days. Since the mortgage commitment was declined because the property did not appraise for a value sufficient to justify the loan, the buyer can claim that the financing contingency was not met within the stated time period. In your case, the buyer might have been "pre-approved" for a loan but probably never got a written commitment for a mortgage on your home because of the $11,000 under-appraisal.

Without reading your contract and without reviewing the buyer's loan approval documentation, I cannot give a definite opinion as to whether you are entitled to retain the $1,000 deposit. However, based on the fact that the appraisal was obtained within a short time after the contract was signed, and the buyer attempted to cancel the contract within a few days after the appraisal, it is likely that the financing contingency of the contract was not met, and that the buyer is probably entitled to the return of her $1,000 deposit.

If you and the buyer cannot agree on the disposition of the deposit, the broker may continue to hold it or may pay the deposit over to the court in an "interpleader" action. This lawsuit names both the buyer and seller as parties, and asks the court to determine how the deposit should be divided. Before the dispute goes on too long, you might want to consider asking your real estate agent to prepare a release stating that you and the buyer divide the deposit 50/50. Given the equities of both sides, this might be a fair compromise you each may accept.

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