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Recovering earnest money may require third-party help

Q: I was under contract to buy a house and then we did inspections.

There was so much more wrong with the house which I didn’t expect, I decided to walk away from the purchase rather than ask for repairs or a price reduction. Now the seller won’t sign the paperwork to release my earnest money. What should I do?

A: The contract we use in Albuquerque is what we call “buyer driven.” It means it’s written to largely protect the buyer’s rights and, as a result, there are a number of contingencies that allow you to get your earnest money back if one of those doesn’t work out. They are inspections, financing, insurance, title work, survey or any other document that is delivered to you for review.

So, you’re absolutely right. If you terminated your contract based on inspections and you did so within the objection period, then you should get your earnest money back. However, it’s not as simple as that.

As you’ve pointed out, both the buyer and the seller have to agree to distribute the earnest money and if both parties haven’t signed the document, then the title company – which is holding the earnest money – cannot release the funds. So what do you do?

If it really looks like the seller is not going to cooperate and you don’t want to wait it out, as many people successfully do, then you’ll need to escalate the situation through the use of an interpleader. This is someone who will decide what should happen to the earnest money and will do so by reviewing the contract and the details of what happened.

You’ll need to ask the title company to send the case to an interpleader. They will decide what happens with the money and often the losing party has to pay everyone’s fees.

I would suggest talking to your Realtor again. Find out why the seller feels they can hold up the release of the funds and see if there’s a way to work it out. If not, take it to the next level. If you objected to the inspections on time, there’s no reason not to get your money back.

Talia Freedman is a Realtor with Signature Southwest Properties.

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