DEAR BENNY: I had a few acres of rural property that I put on the market. I received an acceptable offer along with a deposit. Before the closing, the buyer withdrew the offer for a reason that was not listed on the contract. The buyer’s Realtor requested the deposit back, and my Realtor told me it wouldn’t be worth fighting, so I followed her advice. Later, I received another acceptable offer, but the same thing happened, as the buyer withdrew for a lame reason. Again the listing had been removed, and the deposit was returned.

I thought that a contract was legally binding, and that if a buyer withdraws an offer for a reason not specified on the contract, he or she will lose the deposit. Am I wrong in my thinking? If not, what can I do to make sure this doesn’t happen again? –Paul

DEAR PAUL: In order to have a valid and binding legal contract, three elements are required: (1) an offer, (2) acceptance of that offer, and (3) consideration. Usually, the earnest money deposit will satisfy the third requirement, but consideration can also be where the seller takes the property off the market in reliance on the contract.

Often, buyers will place contingencies in the sales contract — such as the ability to get appropriate financing; making sure the house appraises at least to the contract price; or the buyer must sell his or her house first.

These contingencies should have a time limit imposed, whereby if the buyer cannot remove the contingency, the contract can be declared void at the option of the seller. (Note: In today’s market, a seller may not want to lose a sale and will agree to extend a contingency for a reasonable period of time.)

If the buyer wants to back out of the contract using excuses that are not listed in the signed contract, I would consider this a default and (depending on the terms and conditions of the contract) you would be entitled to keep the earnest money deposit.

Your real estate agent advised you to release the deposit to the buyers. Did you ask why — other than it would not be worth the fight? Obviously if the buyer does have a valid reason, you probably would not want to have to go to court to litigate who gets the money.

Keep in mind that although the buyer may be in default, unless he signs a release authorizing the holder of the deposit (called an escrow agent) to give it to you, the moneys cannot automatically be released. A basic rule of law is that when money is held in escrow (such as the earnest money deposit) the escrow agent cannot release the funds unless the parties agree or a court gives its authorization.

In my opinion, you should have challenged your agent, and perhaps even discussed the situation with an attorney.

How do you protect yourself? First, make sure that the deposit is large enough to make the contract buyer hesitate about trying to walk away from a contract. Second, should someone want to back out of another contract, make sure that you know the specific reasons, and that those reasons are specifically stated in the sales contract.

DEAR BENNY: If your home is foreclosed on by your mortgage lender: (1) Will the lender go after you if the house sells for less than you owed? and (2) If there are two loans on your house, what is the role of the second mortgage (trust) holder? –Jefry

DEAR JEFRY: Because my column is national in scope, I can give you only a general response. Foreclosure law is based on state, not federal, laws, and different states have different laws.

Your first question involves what is known as a "deficiency." If, for example, you owe the lender $150,000, but the home sells at the foreclosure sale for $125,000, there is a deficiency of $25,000. Some lenders when they pursue foreclosure will start the bidding process at the amount of the outstanding balance, while others will set a minimum bid at less than the balance.

Some states do not allow the lender to go after you for the deficiency, while other states do. You have to get the answer about your state from a local attorney.

You also asked about the role of a second trust lender. In general, if the first trust holder forecloses, it wipes out the security of the second lender. On the other hand, if the second lender forecloses, anyone who buys at the foreclosure sale takes ownership subject to the first mortgage. In other words, the buyer steps into the shoes of the homeowner who was foreclosed upon and owes the money on the first trust.

But even if the second trust holder’s security (the deed of trust or mortgage document) is wiped out, you are still obligated to pay that lender. Keep in mind when you borrow money to buy or refinance a home, you signs two important legal documents: the deed of trust (called a mortgage in some states) and a promissory note. The second trust note remains valid even if the trust has been eliminated.

DEAR BENNY: I have a problem and I can’t find the solution. Back in the early 1990s, I purchased land to build a house. Unlike more recent times, I couldn’t get bank financing to do the actual construction so I got private financing. I paid it off, and got a satisfaction-of-mortgage letter, but my county will not accept that for recording.

The original deed of trust was recorded, and named a title company as trustee and a husband and wife as the beneficiaries. The county told me to contact the title company. Well, I visited the title company and they said they don’t know what to do as the husband died and the way they are listed on the document is just their names, not joint tenants, etc. Any suggestions as to how to proceed? The widow of the couple that loaned us the money (which was paid in full) is over 80 years old. –John

DEAR JOHN: Does the trust allow substitution of trustees? Most trust documents anticipate that a named trustee may die or not be able to function, so the beneficiaries would have the authority to select new trustees.

If the widow is mentally competent, she should have the right to appoint substitute trustees who should be able to release your trust from land records.

I would also retain local counsel. The lawyer may be able to convince the title company to release the trust, especially since you have proof of payment in the mortgage satisfaction letter.

In the final analysis, however, you may have to go to court and file a quiet title action. This means that you are asking the judge to "quiet title" into your name.

The judge will require that you make a concerted effort to notify (and serve) everyone named on the trust, and you may even have to advertise the lawsuit in your local newspaper. The judge, upon reviewing all your evidence and concluding that you have paid off the mortgage, will quiet the title into your name and extinguish the trust. If that happens, don’t forget to record the judge’s order on the land records where the trust is recorded.

Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column. Questions for this column can be submitted to


What’s your opinion? Leave your comments below or send a letter to the editor. To contact the writer, click the byline at the top of the story.

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