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posted: 8/15/2014 12:01 AM

How buyers can protect their deposits if a home sale turns sour

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There are a few options homebuyers should consider to bolster their chances of getting their good-faith deposit back if the proposed transaction falls apart.

Q. We had a bad experience a few years ago when we canceled the planned purchase of a home because our home inspector found several hidden defects. Although the purchase offer specifically said we could cancel and get our $7,000 deposit back if we didn't get a satisfactory inspection report, the seller wouldn't sign the paperwork the escrow company needed to return our money. We eventually had to spend 11 months and $3,000 in attorney's fees to sue the seller in order to get the deposit back, but the judge refused to make the seller pay our legal fees. How can we keep this from happening again, now that we're planning to buy a new house?

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A. In most proposed sales, the buyer's initial deposit is made into the account of an escrow company, a closing attorney or the seller's real estate agent. The deposit generally can't be returned if the deal turns sour unless both the buyer and seller agree to it in writing.

Still, there's no law that says your next purchase contract can't include a clause specifically stating the deposit will be held by your own agent instead. Though the seller still would need to agree to have the money returned to you if the planned transaction falls apart, the fact that your own broker is holding the cash would give you a little more clout.

An alternative would be to include what agents often call a "sue or shut up" clause in your offer. It would require the third party holding the dough return it to you if the deal goes south -- unless the seller files a lawsuit to keep it by a specified date. All but the most obstinate sellers won't spend the time or money to file such a suit unless they really believe they have a good reason to keep your money.

Finally, you simply could include a provision that if the deal falls apart and the dispute winds up in court, the losing party must pay for the winner's legal fees and related court costs. That can be a powerful weapon, though there's no guarantee a judge would rule in your favor even if all the evidence suggests you are entitled to get the money back.

Q. Can you explain how a "net listing" works?

A. Sure. It's a rarely used form of marketing a house in which the seller and his or her agent agree on a preset price the owner will accept, and any amount that exceeds that figure will be kept by the agent in lieu of a standard 5 percent or 6 percent commission.

To illustrate, say you sign a net-listing agreement with an agent that says you'll accept an offer for $100,000. If a buyer agrees to purchase it for $115,000, the agent gets to pocket the entire $15,000 overage -- far more than you would have paid if you had instead listed it using a traditional marketing contract.

I'm not a big fan of net-listing arrangements. Some states have even outlawed them, fearing that unscrupulous agents might purposely lowball their property-value estimates in order to pad their fees when the home sells for a much higher price.

Q. I got divorced a few years ago. My ex-wife got the house, but I've finally scraped together enough cash to make a down payment on a condo. Will the lender I choose count the $330 in child support I pay each month as "debt," which would reduce the amount of money I could borrow?

A. Probably. Under the "ability to repay" rules that took effect earlier this year, a lender must consider any court-ordered child support or alimony payments as debt -- just as it would your credit-card balances, automobile loan or other types of bills. Before the ATR regulations took effect, lenders had the option of ignoring divorce-related payments when determining how much an applicant could borrow.

If there's no court-ordered requirement or personal contractual agreement between you and your ex, the lender won't be obligated to consider the voluntary payments when reviewing your application because you could (theoretically) end them at any time. But you'll probably have to list the payments on your loan paperwork anyway, and the bank might very well consider those expenses when determining the size of the mortgage you could obtain.

Real estate trivia: Construction of a typical home involves professionals from 25 different trades, the National Association of Home Builders reports, from carpenters and roofers to plumbers and electricians.

• For the booklet "Straight Talk About Living Trusts," send $4 and a self-addressed, stamped envelope to David Myers/Trust, P.O. Box 4405, Culver City, CA 90231-4405.

© 2014, Cowles Syndicate Inc.

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