Who Has a Right to Keep a Deposit in Failed Home Sale if the Financing Contingency Fails?

home_villa_building_dreamBuying a house can often lead to significant stress, particularly due to the substantial financial commitments involved. A prevalent feature in real estate contracts is known as a “contingency.” One notable example is the financing contingency, which stipulates that the sale of a property is dependent on the buyer successfully obtaining a fitting mortgage. However, an intriguing scenario emerges: What transpires if a contract with a financing contingency unravels after the buyer has already submitted a deposit? The ensuing question arises – who rightfully lays claim to this deposited amount? The forthcoming legal case delves into this intricate web of uncertainties, providing insights that shed light on the matter.

Andrea Saltau-Talbot wanted to buy a residential property in Alexandria, Louisiana. She entered an Agreement to buy the property and extended the closing date twice, but the sale never went through. Talbot and the sellers claimed they were entitled to the $30,000 deposit she had provided under the Agreement. The Agreement contained a financing contingency, but the blanks for the specific conditions included a “TBD.” Talbot claimed she had been unable to secure suitable financing, so she was entitled to have the deposit returned to her. 

A lawsuit followed to determine who was owed the deposit. After a hearing, the trial court ruled the Seller was entitled to the deposit because Talbot had not proved she had made a good faith effort to obtain financing. Talbot appealed.

On appeal, Talbot argued the trial court erred because the Seller was required to prove the Agreement had been breached in bad faith. However, the appellate court ruled because Talbot had initiated the claim under the financing provision that required her to make a good-faith effort to obtain financing under La. C.C. art. 1767 and La. C.C.P. art. 4651, she had the burden of proving she had acted in good faith.

After determining Talbot had the burden of proving she acted in good faith in trying to obtain financing, the appellate court then turned to her argument that she was entitled to the deposit. At trial, Talbot had provided testimony about each lending institution she contacted in attempts to obtain financing. She explained the various reasons, including the location of the at-issue property, and why she could not get approved by any of these institutions for financing. The trial court also noted Talbot seemed like a credible witness. 

Based on the record evidence, the appellate court held the trial court was manifestly erroneous in finding Talbot had not provided sufficient evidence. Therefore, the appellate court reversed the trial court’s ruling and entered a judgment Talbot was entitled to the return of the $30,000 deposit.  

The Talbot case helped answer the question Who Has a Right to Keep a Deposit in Failed Home Sale if the Financing Contingency Fails? If the prospective buyer provides competent evidence of their efforts and rebuttable from banks, they keep it. If they can’t, then the seller should be able to keep the deposit. A good attorney can advise you on your rights and obligations before signing a real estate contract and ensure no incomplete sections, like the “TBD” in the financing contingency here. An attorney with real estate and litigation expertise can also help you evaluate your options if a sale falls through.

Additional Sources: Noles-Frye Realty v. Holly Dixton, et al.

Article Written By Berniard Law Firm

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