Study Agreement Before You Release Earnest Money
Legally Speaking - Property and Housing Laws | By Solicitor Gajanan Khergamker
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- Ravi Shankar, Pune
Most prospective buyers are always confused about the amount of money that they should pay up as earnest money before buying a new home. Generally, an offer to buy a home is accompanied by a check which is referred to as an earnest money deposit.
The idea behind this being that the seller understands and is reassured that the buyer ‘earnestly’ intends to buy the seller’s property.
The amount of deposit obviously varies from place to place because there are a number of factors involved. For example, if a particular property is considered ‘hot property’, a buyer will generally have to make a large deposit and the same holds true when the property market is on a high.
Under normal circumstances, buyers should easily deposit about one to two percent of the purchase price as their earnest money deposit.
But at the same time, it’s always advisable to try and keep the deposit as small as possible. Generally speaking, once the deal is closed, the earnest money is applied to the buyer’s down payment.
Some buyers are of the opinion that they will automatically get the money back if the deal falls through while some sellers think that if the deal falls through, the earnest money is automatically forfeited.
This is not the case. Neither the seller nor buyer automatically gets the entire earnest money deposit even if the other party is to blame for the non-completion of the deal. Before releasing the earnest money make sure you read the agreement carefully. As a buyer, you should consult with your legal advisor if you do not understand any of the terms in the agreement.
A standard agreement usually specifies the proper disposition of the earnest money and how to proceed in certain contingencies.
For example, if the deal does not close, there are certain points to be considered before disbursing the earnest money correctly.
For example, it has to be determined if the buyer made a good effort to obtain financing, if the buyer needs to sell his or her property to finance the new property, if the seller was unable to provide a good title etc.
If the seller does not meet his end of the obligations, then the buyer can be entitled to a refund.
But if the buyer breaches the agreement then, the earnest money can be forfeited.
Sometimes, the injured party affected by the breach may seek cover for additional damages by asking for a specific performance where the court may have to intervene.
So be sure to consult with a lawyer or a legal advisor to understand the consequences and remedies before giving signing over an earnest money deposit.
Ensure Title Is Clean To Avoid
Legal Contentions In The Future
How do I ensure there are no discrepancies in the title of a property I am on the verge of buying? Considering how many home-buyers are left twiddling their thumbs after being saddled with contentious properties, I am worried. Help.
- Name Withheld
There are a series of pre-conditions that need to be fulfilled in order go obtain a clear title to a property.
The owner of the property has to firstly produce all the originals of the title deeds in his possessions after which records pertaining to the property have to be searched from the specific offices maintaining them.
Slight discrepancies in the title of the property can lead to immense problems in the future vis-Ã -vis rights that arise from ownership and possession.
Like public notices that have to be issued in newspapers inviting claims or objections from anyone affected in respect of the said transaction. Following the public notice, if an objection is lodged, the person should be asked to substantiate it within a stipulated period of time or else, ignored. For a transaction to be considered valid in a court of law, it must be registered accordingly. The registration of a document serves as a notice of the transaction to those affected by it.
The seller has to clearly mention in unequivocal terms that there are no encumbrances or mortgages on the property being sold. Very often, several months after the deal has been struck, an unassuming buyer realises that the property purchased has been mortgaged to someone else and that he has been duped.
Often, in order to save on a little money, a buyer may ignore the registration aspect of a document. If a document isn’t registered properly, it fails to confer any title to the buyer who could land with several problems.
However, mere registration of the document doesn’t affirm its genuineness. Both the parties need to have executed the document and shouldn’t be in dispute with regard to the transaction. The sole registration of a document very often is commonly misunderstood as being evidence of a transaction.
This, however, doesn’t provide whole and complete proof of execution which needs to be fulfilled.
Incidentally, for premises purchased in a registered co-operative society, a buyer needs to check a few documents before going in for the deal. The share certificate issued by the society to the owner must be checked in order to authenticate the owner’s credentials and standing in the society. Very often, the seller could be a sub-tenant in a society flat with the actual owner oblivious of the transaction. In that case, the seller would be unable to produce the share certificate in his favour.
In case, the deed has been lodged for registration, the seller should be asked to produce certified true copies of such conveyance, sale deeds and other documents along with the original receipt of the sub-registrar where the document has been lodged for registration.
In case, a buyer opts for a flat in a society that hasn’t been registered, he should look for previous chain of agreements with past owners; Original stamped receipts of payments issued to the previous and present owners by the builder/development authority/society and transfer authorisation papers from the respective authority as well as a copy of approved plan and occupancy certificate issued by the civic body.
This weekly legal column has been generated for The Draft News, Without Prejudice and In Good Faith. To book a Legal Consultation, Call 8080441593.
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