Foreclosures-Earnest Money Deposits on Bank-Owned Homes in The Pekin Real Estate Market

‘Earnest money’ deposits in any real estate transaction show the buyer’s serious intent to purchase the property.

In the Pekin Real Estate market, you, the buyer most often writes a personal check that is held in escrow until you have an opportunity to obtain financing and get the property inspected.

If you cannot obtain financing or if the inspection reveals non-disclosed defects, both the buying and selling parties sign a cancellation agreement and the earnest money is refunded to you. If, however, you cancel the sale for no reason, the seller is entitled to keep the earnest money.

The banks, holding foreclosure property (REOs), are much more stringent about earnest money deposits.

The banks dictate how the payments are made and many banks consider “earnest” money for foreclosure property to be non-refundable, regardless of any problems what may arise in the closure process.

Certainly, you do not want lose the property because you fail to follow the bank’s rules for depositing the money and certainly you do not want to deposit earnest money with a bank if you have no assurance of recovering it.

These are a few suggestions for handling your earnest money deposit on bank-owned foreclosed property:

1.       Have the Earnest Money Available in Your Account

When you are dealing with a bank, the bank expects you to have the earnest money deposit in your account before you write the check. 

In a regular real estate transaction, you can write a check and deposit the money the next day. In a foreclosure transaction, the bank takes possession of the money immediately.

So, if you wire or otherwise transfer money from one account to another, verify that your bank has credited your account with funds sufficient to cover the earnest money check.

2.       Prepare to Replace the Earnest Money Deposit with a Cashier's Check

When an offer is accepted, some banks require that the buyer replace the earnest money check immediately with a cashier’s check. If your bank is out-of state, you should determine, beforehand, how you would get the cashier’s check.

3.       Locate an Overnight Carrier

If you need to send the earnest money deposit check from out-of-state, banks will sometimes accept overnight delivery. Know the available carriers in your area, their pick-up times and guaranteed delivery times so you can respond immediately when you need it.  Get a receipt, of course, to track the delivery.

4.       Make the Earnest Money Deposit Payable to the Title Company

If you make the earnest money check payable to the brokerage company, the brokerage company then has to wait for it to clear before depositing it in the title or escrow company account. This may take days … days the bank is unwilling to wait.

Make the check payable directly to the title or escrow company. If you do not know the exact name of the company, you can add that later.

5.       Negotiate an Earnest Money Deposit Below the Small Claims Court Maximum

If there is an unforeseen glitch in the transaction, you may have to sue to get your earnest money back.

Regular courts are slow and expensive. It is to your advantage to take such a case to Small Claims Court because it is faster and less formal.  However, judgments from a Small Claims Court are limited.  If your earnest money deposit exceeds the limit, the earnest money deposit amount which exceeds this limit is not recoverable in Small Claims Court.

The Small Claims Court maximum dollar amount varies considerably by state … from $1,500 in some states to $15,000 in others. Most have maximums somewhere in between. Here is a list of the states and the Maximum Dollar Amount.

Laws do change … so you should verify this figure before you negotiate.

6.       Have the Property Inspected Before You Deposit Earnest Money

You have 24 hours between the time the bank verbally accepts your offer and the time you need to deposit the earnest money.

Before you make the offer, find a qualified property inspector who is willing and able to respond on very short notice: less than 24 hours, in fact.  Call the inspector immediately after the bank calls you and get the property inspected.

For a FREE List of Bank Owned properties in the Pekin Real Estate market, visit us at www.free4closedlist.com or www.livinginpekin.com