How Not to Loose Your (Real Estate) Deposit (C) 2012 by Wayne D. Lewis, Sr.

Previously Posted at: www.richfitusa.com in 2011

 

As a First Time Real Estate Investor, there are at least three (3) things you will want to remember regarding your deposit in order to ensure that it either goes to the sale of the property, or that you get it back in the event that you don’t purchase the investment property. They are:

1. Read and understand the contract the Agreement to Purchase before you sign it
2. Pay attention to deadlines and timelines within the Contract
3. Do not destroy or deface property before you actually own it.

First of all, the Louisiana Agreement to Buy or Sell is approximately, if not exactly, 349 lines of reading. The information is literally there to be read, prior to signing. If you are going to be involved in  Real Estate Investing, ask your Realtor to provide you with a blank copy so that you can read it without the blanks being filled in. Make notes on the form, and have an idea of what changes you can make, as needed. Those changes can be made on the blank lines contained within the contract, or they can be made on an Amendment form, which you can also request of your Realtor. Please consult with your Realtor regarding the changes you would propose, as each set of circumstances differ.
Failure to misunderstand the language may result in a First Time Investor acting inappropriately with respect to the conduct of the contract, such as claiming ownership before actually having closed on the property. Not being familiar with the language of the Contract could result in a First Time Investor claiming ownership to the property by ordering work to be done on the property that becomes incomplete, or not paid for, resulting in a lien being placed against the property. Such an improper lien would go against the seller, for which they could be sued. As Investor, your deposit has potentially been put in jeopardy.

Secondly, in reading the contract note that there are deadlines included in the contract. I’ll point out one (1) of them right now. For example, lines 39-41, there is a stipulation to closing, on the 1^st page. If the 3^rd of June is a proposed closing date, the 3^rd of June is the latest you should be prepared to close, or go to act of sale. Any later than that date, and there has been no arrangement between the Investor and Seller by way of an Amendment to the initial contract, as an Investor, you have just put your Deposit at Risk. If you anticipate any changes to the date of close, contact your Realtor, and make sure that the Seller is well informed.

One important reason to notify the Seller of any changes in closing is that many Sellers come from out of town to close. If they arrive in town to close, they may have made arrangements to leave the same day, or the next day. It may cost them, so, as an Investor, it may cost you. So please pay attention to deadlines.

A third factor that could result in an Investor loosing their deposit, is attaching, affixing or repairing anything to the structure before close. Those attachments and repairs go with the property. Should the Investor not be able to close on the property, any and everything done during the contract period is the seller’s. Additionally, if an inspection of the property is conducted by the Investor, be sure not to cut, break off, or otherwise damage the property, as such an act could result in the loss of deposit as well. 

Note:  The information that I have shared with you throughout my blogs is based on inferences as it relates to Louisiana and may vary from state to state. You are advised to consult with your Realtor or attorney regardless of your state of origin or wherever you are conducting your investment activities.
For additional reference, I thought I would include the language from the LA Real Estate Commission approved as revised (01/01/11) Agreement to Buy or Sell Contract form. This is what you, as a Real Estate Investor, should familiarize yourself with each time you propose to buy, or even sell your properties. It reads as follows (Line #’s 228-232:
DEFAULT OF AGREEMENT BY BUYER: in the event of any other default of this Agreement by BUYER except as set forth in lines 103 to 122, SELLER shall have at SELLER’S option the right to declare this Agreement null and void with no further demand, or to demand and sue for any of the following: 1. Termination of this Agreement; 2. Specific performance; 3. Termination of this Agreement and an amount equal to 10% of the Sale Price as stipulated damages.
Lines # 234-236 go on to state: Further, SELLER shall be entitled to retain the DEPOSIT. The prevailing party to any litigation brought to enforce any provision of this Agreement shall be awarded their attorney fees and costs. The BUYER may also be liable for Broker fees.