Question: I signed a purchase contract to buy a home
in North Phoenix from a FSBO (“For Sale By Owner”) seller. I gave
the seller $5,000 earnest money. Under the purchase contract I
had twenty- eight days to qualify for a new mortgage loan. I was
unable to qualify for a new mortgage loan and on the twenty-eighth
day, I delivered a notice of cancellation to the seller, along
with a loan denial letter from my mortgage broker. The seller
was very upset, and I have now received a letter from the seller’s
attorney demanding the $5,000 earnest money. The title company
says that, until we both agree, the title company will not release
the $5,000 earnest money to either the seller or me. Is my best
course of action to file a lien against the home and sue the seller
in civil suit?
Answer: First, the buyer of the home is only entitled
to file a lien, or more correctly record a lis pendens, if there
is a lawsuit relating to the title of the home. A dispute over
earnest money has nothing to do with the title of the home, and
therefore you will not be able to record a lis pendens against
the home. Second, under the standard purchase contract used in
Arizona, you and the seller are required to mediate before either
of you can file a lawsuit for the $5,000 earnest money. Many retired
judges, experienced attorneys, and real estate brokers can serve
as a mediator for this $5,000 earnest money dispute. If you and
the seller cannot agree on a mediator, or if the seller will not
agree to mediate within a reasonable time, you will need to file
a lawsuit in justice court for the $5,000. Note: Although technically
the title company should also be named in the lawsuit because
the title company has the $5,000 earnest money, most title companies
will honor any judgment in favor of a buyer or seller for the
earnest money.
