Know your rights when it comes to a bounced check deposit
By Justin Hunter
There was a situation brought up where a home
seller received an offer that was less than ideal but
due to the current status of the market, was accepted.
The prospective buyer had a thorough inspection done
and informed the agent to remove the contingency which
was stated in the contract offer. A done deal looked
imminent until the sellers were informed from the bank
that the deposit check for the sale did not through
due to insufficient funds. Meanwhile, the sellers received
another contract offer with a higher purchase price
from a different buyer.
The article, “Buyer Deserves a Chance To Make
Good on Bad Check,” written by Benny L. Kass and
published in the November 25, 2006 edition of The Washington
Post, explains the rights of both buyer and seller when
this situation occurs.
First thing’s first, the seller’s agent
must immediately notify the buyer that his check has
bounced and therefore has five business days to get
the sufficient funds and have it processed through the
appropriate bank. The agent should then advise the buyer
that if the payment is not sufficiently made in a timely
manner, the seller will break the contract and sell
to the third party.
“If the third-party offer is acceptable, you (seller)
should sign it, but make it clear that this is a backup
contract. You or your agent
should advise the third party of all of the facts, because
full disclosure will help head off litigation.”
The seller
must tell the third party buyer that the “backup
contract” will become the primary contract immediately
upon word that the primary contract with the other buyer
is officially void. The primary contract is first over
the third party contract in rights and obligations.
“The first contract is technically in breach.
That contract required the buyer to post good funds
as the earnest money deposit, and obviously the funds
are not there. However, it would be unfair for you to
unilaterally terminate the contract without providing
the buyer the opportunity to cure the default.”
“It may be that it was an honest mistake. It is
also possible that the bank made an error -- it does
happen. Or it may be that the buyer got cold feet and
arranged to have no money
in his checking account.”
Regardless, you must notify the buyer of the situation
and give him at least five days to rectify it. If not,
you, or the seller, can end up in court facing litigation
charges.
Now, a different situation may arise when the buyer
does not make any effort to redeem the check but also
refuses to sign the contract release form. Can you sell
the property to the third party is this happens?
“If the first buyer
has been given adequate notice and an opportunity to
make good, and if the buyer has not filed a lawsuit
seeking specific performance from the court, your title
remains free and clear (subject of course to any mortgage
you may have that will be paid from the settlement proceeds).”
If the buyer does file a lawsuit, he has to provide
clear and concise evidence that states he is willing
and able to purchase the property that day. This usually
doe not happen however, because these law suits are
very expensive for the buyer just to originate.
So, you want to avoid a legal battle on both sides.
Just keep in mind the basics of five days. After five
days, you can take action.
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