Splitting Hairs
Posted on April 30, 2007 - Filed Under Business |
After today, I will be saying "farewell" to Texas for the time being. There are other activities going on that need to be shared.
The last question to be addressed: Can’t you still get your earnest money back due to financing? In your original contract didn’t you have interest rate parameters in the financing contigency[sic]?
After announcing my intention to withdraw from the contract, I re-read the agreement that the Seller and I had signed.
The first paragraph that caught my eye.
Financing Approval: This contract is subject to Buyer being approved for the financing described in the attached Third Party Financing Condition Addendum.
And when referring to the Third Party Financing Condition Addendum:
A first mortgage loan in the principle amount of $133,200.00 (excluding any financed PMI premium), due in full in 30 year(s) with interest not to exceed 7.000% per annum for the first 30 year(s) of the loan with Loan Fees (loan origination, discount, buy-down, and commitment fees) not to exceed 1.000% of the loan.
At this point, my inclination was to ask for the earnest money back. Until I read this paragraph:
Default: If Buyer fails to comply with this contract, Buyer will be in default, and Seller may (a) enforce specific performance, seek such other relief as may be provided by law, or both, or (b) terminate this contract and receive the earnest money as liquidated damages, thereby releasing both parties from this contract.
This last paragraph gave me pause. The contract had already expired by the time notification was given specifying my withdraw.
Could a request for additional time to find different financing work?
Yes.
The problem was the model. Accepting that my interest rate on a loan would probably be between 7.5% and 8%, the model still did not work. This property was based on the 6.25% financing LenderLady promised.
In the state of Texas, once earnest money has been put into an Escrow Account, it cannot be released to anyone unless both the Buyer and the Seller agree in writing. If the Seller did not agree with my request for funds to be released, the funds would stay indefinitely in the Escrow Account. Only though mediation could the funds be released, requiring my presence in Texas.
The question was posed: What was the right thing to do?
Cat called, asking what we should do with the earnest money. She was fully prepared to get the money refunded.
"No," I said. "The fault is clearly on this side of the table. Let’s release the earnest money to the Seller and move on."
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5 Responses to “Splitting Hairs”
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Since Cat really went all out for you, I would get half back to give her a little cash. The seller did give you a run around for awhile. It doesn’t hurt to ask for half at least.
What is an “earnest” payment? You refer to this several times seperately from the interest payment.
Mottz, I didn’t think about that. Definitely next time around.
Engineer, the “earnest money” is usually 1 to 3% of the purchase price a buyer puts down when after an offer has been accepted. Think of it as a deposit. For the buyer you want this as low as possible. For the seller you want this as high as possible. It’s all part of the negotiation. After a determined period of time, the deposit becomes non-refundable.
I’m curious, since you’ve started with the property ventures have you gained any positive cashflow?
kmekaru, not in California. My preliminary numbers on my new project show I may be able to break even. If I can get 20% down, then I’ll be positive cashflow.