Legal Question in Real Estate Law in Pennsylvania

Buyer breaks agreement because 1st mort. won't completely cover purchase price.

My question: Do I have to refund the earnest money?

Here�s the background: We put our house on the market in early July, the first person to come through offered our asking price and signed a contract to close August 31st. They paid $5000 earnest money. The first week in August, I called to ensure the financing was secure. They said that the house appraised for $8000 less than the asking price and the bank would not originate a first mortgage for the entire purchase price but did offer a second to cover the difference. We also offered to float a second mortgage to cover the difference.

They declined both offers and backed out of the contract. This left us in a difficult spot because we only had 3 weeks until we had to move and suddenly no buyer. We scrambled and cancelled a lot of plans but were able to sell the house to another buyer for $5000 less than the asking price. Since the original buyer violated the contract, we decided not to refund their $5000.

The mortgage amount in the agreement was far below the amount the bank would write for the first mortgage.

Is this a breach of contract? Should I bring this to an attorney? If so in my state or the state where it occurred?

Thanks!!!


Asked on 10/04/05, 3:39 pm

3 Answers from Attorneys
Daniel Harrison Berger Harrison, APC

Re: Buyer breaks agreement because 1st mort. won't completely cover purchase price.

Acceptable financing (sometimes specific financing) is generally a contingency of real estate purchase agreements. The answer to your question will depend on what exactly your contract states. It wouldn't take much time to review it. Let me know if you would like our help.

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Answered on 10/07/05, 7:55 pm
Mark Johns Mark Johns, Esquire

Re: Buyer breaks agreement because 1st mort. won't completely cover purchase price.

In PA you are only entitled to damages that you actually suffered. In this case the earnest money $5,000 equals the amount fo damages ($5,000) from the reduced sale price. You have no need to bring suit as you properly offset the loss you suffered.

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Answered on 10/04/05, 3:48 pm
Bryan Whipple Bryan R. R. Whipple, Attorney at Law

Re: Buyer breaks agreement because 1st mort. won't completely cover purchase price.

In Calif. you'd be allowed to keep up to 3% of the contract price if the sale agreement provided for liquidated damages; otherwise, you'd have to refund and sue (or arbitrate). It's also necessary to determine whether the buyer actually breached, or was entitled to withdraw because a financing contingency failed.

Ordinarily, real estate purchase agreements are governed by the law of the state where the property is situated. It's not entirely clear from the question whether the house is in PA or CA.

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Answered on 10/04/05, 5:02 pm


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