How and when can you terminate but get your deposit back?
The answer to this question will vary from state to state, depending on the contracts used in different regions. That said, many states have similar rules. I am licensed in Pennsylvania, so this post will refer to PA contract law. Let me begin by addressing some of the scenarios in which a buyer would NOT have deposit money returned.
When you don’t get your deposit back
The catch-all heading of buyer actions that result in a termination in which the buyer loses deposit money is “buyer default”. Here are some examples of buyer default:
- Your inspection period is over and you have not terminated in writing, but decide you don’t want the property anymore. Tough–the seller is entitled to keeping your money.
- You do not send in your second deposit by the due date.
- You knowingly supplied false information to your lender or on your Buyer Financial Information form resulting in your not qualifying for the mortgage or otherwise being able to financially complete the transaction.
When you do get your deposit back
- You terminate in writing as a result of unsatisfactory inspection results–as long as it’s done in writing, using the correct documentation and within the allowable time period.
- You terminate due to a low appraisal. This reason for termination results in a return of your deposit as long as you didn’t waive the appraisal, offer any kind of appraisal gap coverage or amend the appraisal portion of the contract in any other way.
- You terminate due to another contingency not being met. Beyond apprasial and inspections, if you’ve elected any other continencies (other than the mortgage which I’ll address in a moment), you may be within your rights to terminate with return of deposit if those contingencies are not met.
- You do not qualify for the mortgage under the terms set out in the contract. Technically, this topic covers the low appraisal mentioned above, as well as not getting an interest rate below the cap indicated on the contract. Additionally, if your lender will not grant you a mortgage, even after pre-approving you, you get your deposit back (in most cases). There are some nuances here–like what happens if you lose your job or if you don’t get the bonus you were expecting–so speak to your lender about the specifics.
- Seller default–this category includes seller behaviors like not making repairs the seller agreed to or not vacating the property by settlement. It also covers actions like not keeping the property in the same condition it was in when the buyer agreed to purchase it, committing fraud on the seller’s disclosure and not settling by the stipulated date on the contract.
Boring but important
While this discussion is not likely to keep you glued to your screen, it is a good idea to have a basic understanding of the circumstances under which you can and cannot get your deposit money back. Talk to your lender about any issues of concern in qualifying (for example, people who own their own businesses for less than two years can have trouble). Talk to your agent about the contract language so you are clear on the “how and when”. The last thing you want is, if a transaction to purchase a house falls apart, to be surprised that you aren’t entitled to your deposit being returned.
If you are relocating to the Philadelphia/Main Line area, please go to my blog page and search for posts using the relocation tag. Contact me to discuss your Philadelphia area relocation! jen@jenniferlebow.com/610 308-5973
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