Who Keeps The 10% Deposit, Part II

Sorry, aggrieved seller, but you DO NOT get to keep the 10% deposit! (sometimes)

Sorry, aggrieved seller, but you DO NOT get to keep the 10% deposit! (sometimes)

The great real estate attorney, Joel Kaye,  has sent me a copy of a recent court decision regarding the question, “What happens if the buyer walks away from the contract, does he lose his 10% deposit?”.

This is somewhat dense, but interesting reading, so if you’d care to plow through 12 pages of  Stamford Superior Court Judge Mottolese’s fine dissertation on the astounding case of “Hammond vs. Miller”, feel free, but I can spare you the trouble. Despite the skepticism of two smart-alec readers, my summation of the issue in a previous post was, as the Brits like to say, spot-on!

To re-state: If the buyer breaches the contract, the seller, in order to keep the entire 10% deposit, must fulfill his duty to make reasonable efforts to mitigate his damages. “Mitigate”, in the case of real estate contracts, means the seller must try and find another buyer, and if the replacement buyer agrees to pay the same amount as the previous buyer, then the seller is only entitled to whatever actual costs were incurred in having to go and find that replacement buyer. Got it?  Apologies accepted.

6 thoughts on “Who Keeps The 10% Deposit, Part II

  1. It’s my understanding that it has always been this way as equity abhors a windfall. However, I also suspect that in subtle ways, real estate agents perpetuate the myth that the deposit is utterly non-refundable in order to keep their deals intact when buyer’s remorse sets in.

    • Info:
      “Equity abhors a windfall”, I like that! And you’re right, the courts will not enforce a contract provision that allows an un-injured party (a seller, for instance, who quickly finds a replacement for a buyer who walked away) to retain the deposit. If there is no damage, there will be no compensation.

      Your point about real estate agents, on the other hand, is silly. You underestimate the sophistication of the Greenwich buyer, who, besides being typically highly educated, has multiple sources to turn to for advice and information. These are not babes-in-the-woods, helplessly in the thrall of the sly, crafty Realtor, they are fully represented by lawyers, accountants, financial advisors, even similarly sophisticated friends! A smart broker does not provide easily disproved information to such a customer.

      • Do you ever leave the rosy confines of Greenwich? Most buyers in the real world do not have an arsenal of professionals on retainer, and as a result they rely, sometimes to their detriment, on the advice of their real estate agents.

        If some of the folks reading your blog thought that down payments were always forfeited, i imagine the average buyer of the average house thinks so too.

      • Info:
        A careful observer of my blog’s title page will reach the inescapable conclusion that the subject I deal with is GREENWICH REAL ESTATE, so yes, those are the people I work with. In less sophisticated towns (where folks are friendly and relaxed), it is indeed the real estate agent who performs most of the work of putting a deal together, even writing the contract! That’s how it is done in the majority of the US. The reason? Lawyers are expensive! But I wish it wasn’t so. No one should buy real estate without a lawyer representing them.

        By the way, I think you’re still missing my point. I’m saying that in many cases, you will get all or most of your 10% deposit back, particularly in a busy, active real estate market.

    • Shed:
      You’re right! In a bidding war, typically the seller has several (if not multiple) would-be buyers, so if, after contracting with one, it’s discovered the buyer can’t perform, at least one of those other buyers will still be around to quickly pick up the deal, often at the same price. As for a statute of limitations, I’m not sure, but I’ve seen court decisions that suggest sellers have a l-o-o-n-g time to try and find a replacement buyer before a decision must be made about what to do with a former buyer’s 10% deposit.

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