Non-payment of earnest money

The broker notified the seller about the buyer failing to deliver the earnest money, and the seller asked how to proceed. If a buyer does not pay earnest money, is the contract automatically void, or is it seller's choice? 

Whenever the listing broker does not receive earnest money, the broker may notify both parties in writing and provide general information about the parties’ choices. If the seller considers the nonpayment of earnest money a material failure to perform, the seller may choose to terminate the offer. The broker may refer the parties to the default provisions of the offer, which lay out the parties’ choices in the event of a default. 

In this situation, the seller has basically three choices:

• Submit a written notice to terminate the offer.
• Submit an amendment to extend the earnest money timeline.
• Wait. 

If the seller elects to terminate the offer, the notice of termination may be accompanied by a cancellation agreement and mutual release (CAMR). Although there is no earnest money to disburse, once signed and delivered, the CAMR is evidence that the parties agree to release all rights and interest in the contract. Alternately if the seller wishes to sue the buyer for specific performance or damages, the CAMR would not be used, and the seller would be referred to private legal counsel. 

Selling the sister's personal property

The washer and dryer are included with the property. This information was stated on the MLS and in the offer, which the seller signed. The seller now claims that the washer and dryer belong to a sister, and the sister is taking them. The listing broker stated that a second cash buyer is waiting. What is the buyer's recourse?

The offer determines the agreement between the buyer and seller. Per the terms of this offer, it appears that the seller agreed to the inclusion of the washer and dryer in the sale of the property. The following are some, but not all, of the potential ways to address the situation:

• If the seller does not include the washer and dryer, the buyer may be referred to the Default provision of the offer, lines 278-292 of the WB-11 Residential Offer to Purchase. 
• The sister could gift the washer and dryer to the seller, or the seller could purchase the washer and dryer from the sister to sell to the buyer per the offer. 
• The seller could provide a comparable washer and dryer, and the parties would agree in an amendment to the offer reflecting the new agreement. 
• The seller may offer an amendment to remove the washer and dryer and modify the purchase price accordingly. 

As with any situation where a party does not or cannot meet their obligations per the terms of the contract, the broker may refer the parties to private legal counsel. 

Another alternative is for one or both of the brokers to offer a financial incentive to the buyer to acquire the washer and dryer or a different washer and dryer. Although Wis. Stat. § 452.19 limits the payment of referral fees, finders fees and commission splits to persons licensed or registered in Wisconsin to practice real estate, or persons regularly and lawfully engaged in real estate brokerage in another state, incentives may be offered to sellers or buyers to induce them to sell or purchase real estate. Before offering any cash incentive to the buyer, the broker may consider any implications with regard to the buyer’s ability to qualify for and obtain financing. Incentives would need to be disclosed to the buyer’s lender/underwriter to avoid claims of mortgage fraud.

See pages 11-12 of the November 2003 Legal Update, “Overcoming Residential Transaction Obstacles," at www.wra.org/LU0311.

Buyer's remorse

The buyer of a bank-owned property no longer wants the property after the bank's acceptance of the offer. There is an inspection contingency with no right to cure. The broker suggested that, until the seller agrees to release the buyer, the buyer should have the home inspection. In this case of buyer’s remorse, what is the best course of action?

The buyer may, at any time, offer a Cancellation Agreement and Mutual Release (CAMR) for the seller’s consideration. It would be the seller’s prerogative to release the buyer from the contract. Generally, REO addenda in REO transactions have some seller bias if the buyer is in breach of the contract. Therefore, the buyer may wish to review the offer to purchase and the default provisions contained therein before deciding whether to try a CAMR, proceed with the transaction, or determine if there is another legal opportunity to release the buyer from the contract. The broker may be looking at the home inspection contingency, which gives the buyer the right to terminate if there are defects and the seller would elect not to cure. In the end, the buyer’s choice should be made only after a full review of the contract and circumstances, preferably upon the advice of the buyer’s attorney. 

Inspection – right to cure 

A customer wrote an offer to purchase contingent on a home inspection; the seller has the right to cure. The customer now wants to terminate the contract regardless. The home is being sold “as-is.” The broker submitted a notice to cancel the contract as well as a CAMR to the listing agent. The sellers have yet to sign the CAMR. 

What options does this buyer have with respect to canceling the contract? The buyer is adamant that he will not buy this property and will not go forward with either lending or closing. 

A buyer who gives the seller the right to cure does not have the unilateral right to terminate the offer based on the results of the home inspection, given the home inspection contingency in the WB-11 Residential Offer to Purchase. The contingency provides that when a buyer gives a timely written notice of defects to the seller, accompanied by copies of the home inspection reports, the seller has 10 days to elect to cure the defects or to allow the offer to purchase to become null and void. See lines 429-435 of the WB-11. If the buyer gave proper notice of defects and the seller did not elect to cure, the offer will be null and void. 

In the event the buyer wants out of the contract, the notice of defects may be accompanied by a CAMR, which would allow the seller to agree to end the contract. If the seller elects to cure, the buyer may be referred to the default provisions of the offer and private legal counsel for legal advice. The buyer’s attorney may review the offer to determine if the buyer has any contractual right to get out of the contract. If not, legal counsel will advise the buyer on the risks for breach of contract.

Tracy Rucka is Director of Professional Standards and Practices for the WRA.