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Has Anyone Gotten Their Earnest Money Back?

By Matt Goyer February 1, 2009

A lot of folks put 5% earnest money down years ago to lock up a condo that is only coming to market now. Unfortunately for many folks the purchase and sale agreement they signed very likely didn’t have a financing contingency because as the sales center folks will tell you, that’s just not how it’s done. And of course the developer didn’t really do much due diligence on your ability to actually get a loan.

The Seattle Times has a story today about someone at Veer Lofts who is now out $14,000 and doesn’t have a condo, How much should you pay for a dream?

He’s got the same job, with a slightly higher salary. Yet today he can’t get any loan. The reality is that his condo would eat up a bit more than half his take-home pay, considered A-OK in the go-go days of 2006 but unacceptable today.

And now Vulcan â€” technically the Veer Lofts Venture LLC â€” won’t give him his $14,000 deposit back.

If you dig in the comments Vulcan’s spokesman left a comment:

Danny, you and I talked a long time Friday and I wanted to share a few things you didn’t have room to include in your column.
Vulcan has worked hard to help people close on their condos. We have had success as we work to be as creative as possible with our buyers, whether that means delaying closing or some other fix.
Unfortunately we did not have the opportunity to sit down with Mr. Cohn and, as I told you Friday, we remain committed to do so.
Veer is now approved for FHA loans, which means lower down payments and other benefits to buyers looking for affordable housing. That, too, has helped people close on their condos.
Mortgage companies that over-promised home loans did no favors for us or any developer. The banks got their bailout, but that has done nothing for buyers like Mr. Cohn, or, frankly, for companies like us.
Our website needs to be updated, but as I told you, Countrywide is no longer the preferred lender at Veer. And even when it was, it was made clear to all buyers that there was no requirement to use the firm.

When a buyer is unable to close and move in to their condo, we don’t win by having their earnest money. We lose much more than that with a suddenly unsold condo unit and an unhappy customer who contacts the media.

Are there any stories of any developers giving back the 5% earnest money? Or are any developers putting folks into cheaper units that the buyer could get financing on? Or doing lease to own? What’s the dirt here? I haven’t heard anything.

…I’m in Mammoth Lakes California tired from a day of skiing which explains why I haven’t responded to any of the great comments in the last few days.

I own and manage Urban Living, a boutique Seattle and Bellevue real estate brokerage. I love lofts, floating homes, new construction, and mid-century moderns, but I will help you buy or sell just about anything!

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26 responses to “Has Anyone Gotten Their Earnest Money Back?”

condo1 says:

February 1, 2009 at 8:21 pm

Interesting. I hope we will find out what the ultimate conclusion to this dilemma is. Vulcan's response seems well-thought out and seems to be in line with helping the buyer in this situation. I wonder what will ultimately happen…
Peckhammer says:

February 2, 2009 at 7:57 am

“Unfortunately for many folks the purchase and sale agreement they signed very likely didnâ€™t have a financing contingency because as the sales center folks will tell you, thatâ€™s just not how itâ€™s done.”

I find that hard to believe. The P&S agreement is standardized in this state, and I have signed several of them. They all had financing contingencies that returned your earnest money deposit if you were unable to secure financing. And this is why a lot of people got pre-qualified so that the seller knew your offer would actually result in the sale going through.

Of course, if the financing contingency was removed and the buyer signed it, then it's tough luck for him. Without seeing the contract documents, we don't know what the real story is.

I've always used a lawyer for real estate transactions. I pay them to review all the contract documents, as well as any covenants, rules, and regulations that apply to a property. This is important, because buying a condo is about the stupidest thing anyone will ever do in their life, so you need to be sure you understand all the risks associated with doing so. I say this with some authority, having purchased a condo, and having been involved in condo management for 10 years. Stupid! Really Stupid!

“Are there any stories of any developers giving back the 5% earnest money? Or are any developers putting folks into cheaper units that the buyer could get financing on? Or doing lease to own?”

Yes, to all of the above. I am aware of a developer doing lease to own. And these trends are going to increase.

It is my understanding that the majority of the six Veer units that are being offered on the front page ads of the Seattle Times and PI were pre-sales that could not close. I assume that $14K we've been talking about was used to pay for those ads, which include Coutrywide and JL Scott in them. LOL!

A number of pre-sale buyers at Rollin Street who claim to be in the same financial dilemma been organizing and plan to meet to discuss their options.

Here's a quote from someone posted in The South Lake Blog:

“We are in the process of communicating with Vulcan about our pre-sale purchased unit at Rollin St. We are unsure whether we can close on our unit in these financially challenging times and would like to talk to others in this specific situation. If you have purchased a unit at Rollin Street Flats and would like to get together to share your experience and future plans, please let us know. Time is of the essence in this matter as closing dates are fast approaching. . .”
ADS says:

February 2, 2009 at 8:34 am

http://www.bloomberg.com/apps/news?pid=20601213…
CameronRex says:

February 3, 2009 at 12:00 am

During the boom times – seems like that was some far away time – realtors/sales offices would routinely advise prospective buyers that their 'offers' were stronger if they got pre-approved and did not have a financing contingency. Hindsight makes someone signing an agreement like this sound stupid, but when almost no one was being turned down for financing why would you include the financing contingency.

I really took that as a major point of the article. The Countrywide office was INSIDE the sales center. They gave out this hokey certificate that for some people might seem to be a guaranty of funding. I just found the whole thing to sound very shady.

And I wonder why Vulcan has not had the opportunity to sit down with Mr. Cohn. It doesn't sound like he has been hiding anywhere. Finally, if it doesn't do them any good to end up with the $14,000 then why don't they give it back to the guy who it actually DOES mean something to.
Mark W says:

February 3, 2009 at 12:33 am

Westneat uses a sympathetic buyer in his column, but the same thing happens with flippers. If Westneat had focused on some guy who had flipped a dozen places before the economy changed on him, would the flipper get the same sympathy?
And as has been asked in similar threads, if instead the economy doubled the value of the condo he was buying, would we feel sympathy for the developer? What if the economy was fine but he had lost his old job and now had half his income?

What defines the buyer's situation isn't a newspaper column but the terms of the contract that the buyer signed. If the proposed lender and developer lived up to the terms they agreed to in the contract, then the buyer shouldn't get his earnest money back.

Real estate purchases are often the biggest purchase we make in life. Read the contract and understand what you're really committing to, especially if the transaction actually takes place a couple years out. Get a lawyer to help you understand it, if neccessary, because the people hoping to make money off of your purchase have really good lawyers of their own – and they drafted the contracts.
nitsuj says:

February 3, 2009 at 11:08 am

Hope you're in Mammoth all week, looks like some snow finally pushing in later this week. Been a lame year thus far, snowpack wise.
jbglobal007 says:

February 6, 2009 at 1:33 pm

Would people feel differently about this if Vulcan/Paul Allen wasn't a billionaire? It almost feels like a double standard – if this was some random seller, versus a wealthy developer, would people as sympathetic?
Promethius says:

February 6, 2009 at 1:44 pm

Vulcan is a well- armed machine that can squash most people like a bug. It's not about being a billionaire; it's about the inequity and advantage Vulcan has over the consumer.
Mark W says:

February 6, 2009 at 4:21 pm

Vulcan may have better lawyers, but the consumer has the real power. They don't have to sign contracts that they aren't willing to commit to. If the contract doesn't have a financing contingency, demand one. If the developer balks, the consumer can simply walk away.

But when the consumer makes the choice to sign, the consumer takes on defined responsibilities – as does the developer. What Danny Westneat says is irrelevant. What did the buyer take responsiblity for when he chose to sign the contract? What did Vulcan agree to?
Peckhammer says:

February 6, 2009 at 9:19 pm

“Vulcan may have better lawyers, but the consumer has the real power.”

Sure, Mr. Vulcan Shill.

“Buy now or be priced out forever” was the mantra of Vulcan's sales center, and most of the real estate industry. Consumers were duped into thinking they had no other options.

Please don't try to BS us with some kind of personal responsibility nonsense. Vulcan was preying on herd mentality. Well, they've shown what they are made of. I would have considered purchasing a Vulcanized property. There is not one unit they've built in this city thtat I could not afford to purchase — but knowing what I know now, I'd rather roll my money into firelogs and use it in my fireplace.
Garron says:

February 7, 2009 at 9:19 am

As a disenfranchised buyer it goes beyond this point of time and this transaction. I will continue to hold Vulcan as a company in ill regard and do everything within my rights as a consumer and member of the community to ensure that none of my business or the business that I can influence goes to this corporation. If it is ok for Vulcan to build at the expense of working class individuals then the only reaction that makes sense is to have those individuals take as much money away from Vulcan as is possible through whatever legal means they have to influence the business community. If Vulcan wants to behave in this manner then I would prefer if the company were not in my city.
rollinst. says:

February 7, 2009 at 10:21 am

Garron —
I posted this earlier. Not sure if you saw it. But maybe you can share your experience with us over on Facebook. Read on…
If anyone is a Rollin Street Owner, check out the Facebook page “Rollin Street Buyers”. You can ask to be added as a friend if you are a buyer. Be ready to verify your condo purchase before you are accepted. This will be a private place where all Rollin St. owners can get together and organize and discuss issues that may arise during our closing process.
rollinst. says:

February 7, 2009 at 10:29 am

I still keep thinking they are going to work it out with us Rollin buyers but from what I have heard so far, that light is quickly fading. I know they can do right by us, it is just a matter of time to see if they will or not. Communication would be nice. Not from the sales staff at the Discovery Center. But from those at Vulcan with the power to make the decisions. We all would like to get into our units, but need some sort of compromise to do so in this economic atmosphere.
Mark W says:

February 7, 2009 at 4:59 pm

I'm no Vulcan shill. I'm a renter at Met Tower Apts, and nothing I've heard about Vulcan encourages me to do business with Vulcan.

If the developer doesn't agree to a contingency in the contract, then if the consumer signs, that's the consumer's way of saying that they're great with that. And with that, there's no reason to think that the developer will suddenly pretend that there was a contingency clause if things go sour.

When it's the wolf that writes the contract, the sheep need to be especially careful about signing it (but I guess that's flocks, not herds)
Mark W says:

February 7, 2009 at 5:20 pm

At the risk of being labeled a Vulcan shill again, why would you think Vulcan is going to work it out with you?

I'd guess that they'd first want to see who all actually closes under the original terms. Only then would they need to consider what to do with the rest – and in a way that doesn't tick off buyers that closed at full price.

Unlike some mom&pop developer, the guy behind Vulcan's got some pretty deep pockets, he's got a good idea as to how many jobs are coming to SLU in the next year or so, he controls how fast other properties in the neighborhood are developed. The recession will hit bottom sometime in the next year – and Vulcan can afford to wait it out.
rollinst. says:

February 7, 2009 at 6:16 pm

I am thinking they will work something out because at this point I would be surprised if even 1 or 2 of the presale buyers could close on their units. For one thing the market tanked and who would close on a way-overpriced unit and another, many of us (me included) no longer qualify for the loan we were approved for a year and a half ago. I know we are not the only ones in this boat. It is ugly out there. They will NO WAY appraise for what the presale prices were. It seems like a no-win for Vulcan or the buyers, hence something should be compromised and worked out.
Peckhammer says:

February 8, 2009 at 7:56 am

Hey, sorry about the label. I just get ticked off when I hear about quasi-unilateral contracts that favor the developer at the expense of the consumer.
Peckhammer says:

February 8, 2009 at 8:09 am

Vulcan may be counting on a surge in sales from the $15k Homebuyer Tax Credit.

I agree with Mark W above that Vulcan has time and money on their side. If there are as many hapless buyers no longer qualified to purchase their unit, Vulcan has no reason to be handing earnest money deposits back. They are going to use that money for the carrying costs of their 1/2 empty buildings that have no associations formed yet.

Laslty, most individuals can't afford the legal costs to challenge Vulcan either. You'd spend a lot to get a little, even if you won. I think the only hope is to organize, but I don't see that happeing either. Color me pessimistic, but from what I've read, people seem to be willing to walk away from as much as $50K like a bunch of passive little lambs.
rollinst. says:

February 8, 2009 at 11:16 am

I think it is important to point out that while Vulcan does have deep pockets they are under pressure to work with Rollin Street buyers for a number of reasons.

First, Rollin Street is the largest project they have undertaken in this second phase — with 208 units — and only 25% are “pre-sold.” Both Veer and Enso had much larger pre-sale commitments. Vulcan needs to get Rollin Street above 50% sold in order to qualify for FHA, which is the only game in town for jumbo loans in the current environment.

Second, I think it is safe to say that NO ONE is going to close under the initial sale price — unless they agreed upon one recently — which is highly doubtful when they have only received seven additional commitments at Rollin Street in the last 18 months. The appraisals are going to come in at least 10% below the agreed upon purchase price and likely much lower. What purchaser would cover that shortfall on top of the additional down payments required to close on the loan? (Especially with the current economic backdrop where consumers are afraid to buy a toaster!) The answer is easy — no one will — you have zero incentive to do so. If you really want your unit, you can fight for your money or just walk away, and come back and low ball while prices continue to drop. And Vulcan knows this reality all too well. They will have to — at minimum — match the appraisal because they sure don't have a line of buyers behind us ready to purchase the unit.

Third, the earnest money is a pittance to Vulcan and does not even come close to covering any of their costs. In fact, it doesn't even cover the commission involved with reselling the unit — not to mention the carrying costs of their loan. They even have to cover the HOA dues for EVERY unit until the project is 75% sold.

All of these factors in the face of continued falling home prices and slumping demand are more than enough to bring Vulcan to the negotiating table. Microsoft declining to expand at 2201 Westlake didn't help matters. They know they are in a tough spot on this one and have already slashed prices on their units — to no avail.
Peckhammer says:

February 8, 2009 at 12:26 pm

“Vulcan does have deep pockets they are under pressure to work with Rollin Street buyers for a number of reasons.”

Vulcan's deep pockets mean nothing. You are dealing with Rollin Street Venture, LLC.

And for those of you who are at the Veer, you are dealing with Veer Loft Venture, LLC. Vulcan can walk on all of you at any time. Think it can't/doesn't happen? Think again:

“It unfolds like this: Unable to sell half the units in a building, a struggling developer stops paying common charges and defaults on obligations to the lender. Foreclosure by the lender may take years, while individual unit owners effectively wind up paying double their normal common charges. This pushes some owners, themselves struggling, into default. Meanwhile, they are trapped â€” unable to sell, even at a steep loss, because most mortgage lenders wonâ€™t lend to potential buyers in a building where half the units are in default. “

Source: http://www.nytimes.com/2009/02/08/realestate/08…

While Matt can tell you all about the sexy finishes at 1521, I'm can tell you about the world of hurt that comes with condominiums. Caveat emptor folks!
screwdfromMess says:

February 8, 2009 at 8:27 pm

What if those standing to lose earnest money organized pickets in front of the South Lake Union Discovery Center during business hours?
Mark W says:

February 9, 2009 at 12:53 am

It might scare away the buyers flocking to… oh, wait, who'd notice?

Given some blog posts elsewhere about 2200 and Veer, bring a level, a good straight edge, something to measure wall angles (right angles should be right), and a tape measure. Make it an all day affair, noting every chip, scratch, dent, missed spot with the concrete seal, door squeak, etc. Run the water, run the dishwasher. If they promised good soundproofing, play a radio loudly in the hall or next door neighbor to see if you can hear it.

It's supposed to be new, after all.

Of course, it could be in great shape, or the problems easily fixed, in which case this may not do you a lot of good.
Gerwin says:

February 21, 2009 at 2:47 pm

HometownRenter.com has the questions to ask yourself if it is better to rent or buy in your situation. Do you need the flexibility of renting? or can you afford to stay in your home for at least 5 years or longer?

* Can you afford a 20% down payment?
* Can you afford a monthly payment on a 30-year fixed mortgage?
* ask your CPA … Does the tax benefit of home ownership offset a potential decline in home value?
* Have you reduced other real estate debt before you add more on this home purchase?
* Does a fixed monthly mortgage payment for the next 15 years outweigh the likely inflation of rents during that same time (called an inflation hedge)

These are broad questions that can have many variations for each individual situation. However, it is a good foundation from which to start your home buying process.

If you are in the market for a rental, visit http://www.HometownRenter.com to find your next rental home!
Freeballard says:

March 5, 2009 at 4:38 pm

I had to hire a lawyer from Crane Dunham to try to get those Vul(can)tures to give me a refund on my condo deposit. It's absolutely ridiculous and I was about to just walk away after I couldn't finance it. I just heard they're delaying it AGAIN.
Chris Johnson says:

March 6, 2009 at 2:34 pm

Def call a laywer in town to provide you with the best representation. You don't want to go into this blindly without someone negotiating on your behalf. I put this in a previous post. I would call Crane Dunham PLLC. Stephen J. Crane is handling these cases in the Seattle area.
Chris Johnson says:

March 6, 2009 at 10:34 pm

Def call a laywer in town to provide you with the best representation. You don't want to go into this blindly without someone negotiating on your behalf. I put this in a previous post. I would call Crane Dunham PLLC. Stephen J. Crane is handling these cases in the Seattle area.

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