“A sum given by the buyer to the seller in connection with a contract to sell is regarded to be a deposit on account of the price, unless the parties have expressly provided otherwise. If the parties stipulate that a sum given by the buyer to the seller is earnest money, either party may recede from the contract, but the buyer who chooses to recede must forfeit the earnest money, and the seller who so chooses must return the earnest money plus an equal amount. When earnest money has been given and a party fails to perform for reasons other than a fortuitous event, that party will be regarded as receding from the contract.”
Need To Know #1: After the due diligence period, the earnest money should become non-refundable, but if the purchaser subsequently wants to cancel and the if the deposit is called earnest money in the purchase agreement, the purchaser can get out of the contract by forfeiting the earnest money. If the purchase agreement does not specify earnest money but uses the term deposit, the purchaser not only loses the deposit but can be sued for specific performance. The earnest money is deemed stipulated damages.
“If the terms of the sale provide for a deposit by the purchaser, this deposit shall not be considered earnest money and does not give the purchaser the right to withdraw from the sale by forfeiting the deposit. However, if the property is resold at the risk of the first purchaser, and a loss is occasioned by such resale, the party provoking the sale may proceed by rule against the first purchaser and the officer conducting the sale to have the deposit turned over to the plaintiff in rule, to the extent of such loss. ”
Need To Know #2: If the seller defaults, the penalty is twice the earnest money; if the buyer defaults, they simply lose their earnest money. The Purchase Agreement spells out what a default is.
If the purchaser wants to terminate the contract within the due diligence period and get the earnest money back, the broker or title company holding the earnest money will require a form to be signed by both the seller and the purchaser. The Louisiana Real Estate Commission states that a broker cannot give a deposit back to a purchaser without a signed cancellation of all parties to the contract. If all parties do not sign the cancellation then a dispute situation arises and the Louisiana Real Estate Commission procedure must be followed; however, the Real Estate Commission does not want to be the institution resolving disputes and the deposit is placed with a court and you will have to file a lawsuit to resolve the issue.
Need to Know #3: Make sure your purchase agreement spells out how the purchaser can get his earnest money back and in how many days and who has to authorize it, as well as conditions of a default.
After the title company accepts your earnest money, they provide the following services:
Need To Know #4: Ask the seller for his title policy. It might provide your closing attorney with information that will save time and will also disclose what the seller paid for the property.
Need to Know #5: In Louisiana, the title insurance is paid by the purchaser, which might be different than other states like Texas where the seller pays the title insurance.
Need To Know #6: In Orleans Parish, property taxes are paid ahead, but in Jefferson Parish, property taxes are paid for the previous year. The taxes are always pro-rated.
Need To Know #7: During the inspection period, secure flood, hazard and general liability insurance that will be required by your lender before closing.
Need To Know #8:New Orleans charges a $325 transfer fee which is normally paid by the purchaser but can be detailed in the purchase agreement as to who will pay. Sometimes purchase agreements are vague as to closing costs so before you sign, revise it to itemize each closing cost and who pays what. Typical closing costs are:
Need To Know #9: There are two types of title insurance, lender’s and owner’s policies. Lender’s policies are required by every public mortgage lender to protect only the lender against problems, but do not protect a property owner. Buyers must separately purchase an owner’s policy which covers:
In summary, knowing these 9 things will help you avoid surprises, give you the upper hand in any re-negotiation you may have to undertake, and help you work toward a smooth closing which moves your project forward.