by Phoenix attorney Christopher A. Combs, partner with Combs Law Group, P.C.
Question: Our partnership is selling eighty acres of land near Florence. The buyer paid a $100,000 earnest money deposit and had a sixty-day “due diligence” period to conduct all inspections relating to the property. The sixty-day period has passed, and escrow is scheduled to close. The buyer’s environmental consultant now says that, due to the use of pesticides in farming operations years ago, there will be extensive clean-up costs. We were unaware of the use of pesticides in any prior farming operations by previous owners. As a result of the pesticide contamination, the buyer is demanding the return of his $100,000 earnest money. We have told the buyer that the buyer had sixty days to complete all inspections of the property, and that we are entitled to at least keep the $100,000 earnest money. Can we keep the $100,000 earnest money?
Answer: Probably. The general rule is that, if there is an inspection period for a buyer to conduct his “due diligence” to determine the feasibility of buying the property, the buyer cannot cancel the contract for a problem that the buyer should have discovered during the inspection period. Therefore, in Arizona you should be able to pursue any remedies available under the contract for default of the buyer, including the remedy of keeping the $100,000 earnest money. Note: The law in this area is not entirely clear. For example, the Ohio Supreme Court has ruled that, even though the buyer did not discover a flood plain problem during the inspection period, the buyer was entitled to rescind the transaction upon discovery. The reasoning was that the buyer was not negligent in failing to discover the flood plain problem, and that the seller and the buyer were acting under a mutual mistake of fact regarding the existence of a flood plain problem. 632 N.E.2d 507 (1994).
6 responses so far ↓
1 Ann Torri // May 3, 2007 at 11:00 am
I just put a $5000.00 deposit on a home–the following day I had regrets- can we get the deposit back if we inform seller within 3 days?
2 John L. Wake - Realtor // May 3, 2007 at 2:36 pm
That depends on your contract.
The standard Arizona Association of Realtors contract has a 10 day inspection period during which the Buyer can cancel the contract with return of the earnest money, no problem.
Ask your Realtor for details.
However, you may just have “buyer’s remorse.” It’s very common, especially with first home buyers.
3 Rosa Mejia // Jun 13, 2007 at 10:34 am
If a closing date is issued on a contract and closing does not take place on that specific date, is the contract valid?
4 John L. Wake - Realtor // Jun 13, 2007 at 5:02 pm
Yes, the contract is still valid.
In the standard Arizona contract (this is peculiar to Arizona) it is not a breach until the other party gives the offending party a “3-Day Cure Period Notice” and the offending party hasn’t corrected the problem within the 3 days. After that it’s a breach and the other party can (but doesn’t have to) terminate the contract.
5 Gail Gilbert // May 19, 2008 at 10:52 am
Hi,
My good friend, who lives in Glendale, put 15,000 on a home in a planned community, but first she had to sell her home which didn’t happen. She lost her $15,000 when she didn’t purchase. She feels that her agent did not protect her. Does she have any recourse to recover the $15,000? How long a timeframe to do so? She is a senior citizen and didn’t realize she could’ve gotten her earnest money returned.–Thanks-Gail Gilbert
6 John Wake - Real Estate // May 19, 2008 at 11:10 am
I’m sorry to hear about your friend!
That is a very complex issue and it depends on the contract she signed. Each homebuilder has his own contract and they are tremendously biased in favor of the homebuilder.
Your friend might want to call a real estate attorney for advice. You can find a list in the right-hand column or here http://www.arizonarealestatenotebook.com/2008/01/09/arizona-real-estate-attorneys-lawyers/#more-1718
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