Q: You have repeatedly advised that any earnest money be deposited with escrow. In my unfortunate experience, this didn't protect the seller, me, against a default.
The buyer, seeing that the contract would not let him get his money back when he canceled the deal, decided to be a dog in the manger and keep anybody from getting it.
He refused to sign the release to have the money given to me, and the ultimate cost of legal proceedings to compel escrow to give me the earnest money exceeded the amount in question.
Thus, the money still sits in escrow. Escrowing it gave me no protection. It did not allow me to receive the money intended to compensate me for expenses I suffered when he canceled the sale.
A: I am sorry to hear about your situation. However, I still strongly believe that the buyer's earnest money deposit should be held in escrow by a neutral party until settlement (escrow) occurs or the parties agree as to how the deposit should be distributed. And if the parties cannot reach agreement, then a court will make the decision.
Your mistake: The sales contract should have stated that in the event of a dispute between buyer and seller, and if litigation takes place, the judge shall award reasonable attorney's fees to the prevailing (winning) party. That language is contained in all of the sales contracts that I review, whether my client is the seller or the buyer.
We follow what is known as the "American rule" on legal fees, namely each side pays his or her own attorney. One exception to this rule: If there is a statute or a provision in a contract which provides that the prevailing party will be awarded legal fees, judges will honor that.
In your case, have you tried to negotiate and at least split the difference. I would expect that both sides would like to get some money back. Your buyer may be a jerk, but does he really want to be out of pocket the entire deposit?
Q: Can you please explain the meaning of basis?
A: Basis is a term used in determining profit or loss. Your basis for tax purposes is the purchase price. You then add certain closing costs plus any improvements to get the "adjusted basis."
To find out if you have to pay income tax when you sell your house, you take the selling price less selling expenses to get "amount realized." Then you deduct the adjusted basis and get a final number, which is a gain or a loss.
If this is your principal home that you have sold, you can get a terrific tax break under certain conditions. If you have lived and owned the house for at least two out of the five years before it was sold, and if you file a joint tax return with your spouse, you do not have to pay capital gains tax on the first $500,000 of gain (or up to $250,000 if you file a single tax return). This is known as the "use and ownership" tests.
There are provisions in the federal tax law that allow partial exclusions if you meet certain requirements, such as you changed your employment and the new job is now more than 50 miles from your home. Or for health reasons you had to sell before you could meet the two out of five rule.
Benny L. Kass is a practicing attorney in Washington and Maryland. No legal relationship is created by this column. Send questions to email@example.com.