Sunday, October 20, 1996 - Page updated at 12:00 AM

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Does Seller Keep The Earnest Money If Buyer Backs Out?

Seattle Times Staff Columnist

Q: I am about to put an offer on a home and am wondering under what circumstances a seller can keep my earnest money? I don't want to be vulnerable.

A: The seller can keep your earnest money - essentially a good-faith deposit - if you back out of the deal without playing by the rules set forth in your purchase agreement. However, your purchase agreement should contain two stipulations that will let you back out with your deposit. First: The deal hinges upon your securing a mortgage. Second: The sale is subject to a home inspection. "The most important thing is to have a qualified structural inspection," says Paul Carlson, agent with the Carlson Group at Prudential Preferred Properties in Everett.

If you don't like the inspection results, you may give the seller the option of fixing whatever's wrong; if the two of you can't agree on the fix, then the deal is nixed. Carlson also suggests buyers pay particular attention to the disclosure form sellers fill out that acknowledges their home's known defects. "The disclosure form can show things the inspection doesn't," he says. Some experts also recommend buyers add a third stipulation to their offer: that it be subject to review by an attorney.

Q: I want to refinance my house and need to know more about lock-ins. Specifically, if I lock in an interest rate, does this mean I can't get a better rate if the rate goes lower? And what are my options if rates drop and my lender won't reduce my rate?

A: Jeff Behrman, senior loan officer with Arboretum Mortgage, says there are no absolutes and the answer depends on whom you ask. "If you go to a bank or savings and loan and lock in, and the market goes down, most are going to hold you to that rate," Behrman says. If you go to a mortgage broker, the same thing may happen, but because brokers have access to mortgages from many lenders, a broker may be able to move your deal from one lender to another.

However, this may not be a good idea. "Sometimes there are costs associated for moving from one to another, and sometimes lenders charge lock-in fees. If you decide to (move) you may lose your lock-in fee. But in a case where the interest rate drops half a point, the benefits may outweigh any cost involved with moving the loan," Behrman says. Occasionally, too, a lender who doesn't usually lower rates will do so rather than lose the business.

Q: We're trying to sell our home. It's on 10 acres that once were part of a larger property; there's a private road, about 70 years old, between our property and our neighbor's that we both share. The property line starts in the middle of the road, but the majority of the road ends up on the neighbor's property. The neighbors want to erect a fence on the property line and have told us to build another road. Is it necessary that we or the new buyers of our property build another road or widen the existing one?

A: Real estate attorney Vernon Finley says you probably have what's called a prescriptive easement. Such an easement comes into existence when you've had use of someone else's land - in this case the strip that's the road - for 10 years. Having a prescriptive easement means you have the right to use the road where it is, even though much of it is on your neighbor's property. What's more, "You don't have to build another road," Finley says. He suggests you learn exactly where the boundaries are because "often times, when dealing with larger tracts in rural areas, there are survey problems." If the legal description of your land doesn't include the easement, Finley suggests you negotiate with the neighbor (perhaps bringing in a mediator to help) to change the legal description to reflect the road and the easement. If the neighbor refuses and starts fence building, you'll be headed to court for an injunction until it can be settled. As for selling, Finley says legally you must tell a prospective buyer about this dispute.

Home Forum answers readers' questions every Sunday in the Home/Real Estate section. Send your questions to Home Forum, Seattle Times, P.O. Box 70, Seattle, WA 98111, or call 464-8510 to leave questions on Home Forum's recorded line. The e-mail address is

Copyright (c) 1996 Seattle Times Company, All Rights Reserved.


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