Low Appraisal, Late Denial, and a $5,000 Deposit
Carla contracts to buy Dave's Shreveport house for $285,000 on the Louisiana Residential Agreement to Buy and Sell, depositing $5,000 with Crescent Title. The financing contingency requires Carla to apply within 7 days and to give the seller written notice of loan denial, with the lender's written statement, no later than 5 days before the act of sale. Closing is set for May 30. Carla applies on day 10. On day 30 the appraisal comes in at $268,000. Carla asks Dave to drop the price to $268,000; he refuses. On May 24 the lender denies the loan because Carla co-signed a car loan after applying. Carla's agent emails Dave's agent on May 26: 'Carla can't get the loan, we need the deposit back.'
1. Is Carla entitled to return of her $5,000? Analyze the appraisal, the denial, and the notice.
Read the worked answer
Three separate events, three different legal effects.
Low appraisal ($268,000). Unless the contract contains an appraisal contingency or price-adjustment clause, a low appraisal is not a financing failure. Carla's options are to bring cash to the gap or negotiate; Dave is free to refuse, and the contract still binds Carla. She cannot force a $268,000 price.
Loan denial (May 24). This is the real contingency event. Carla applied within the 7-day window and the loan was actually denied for a documented underwriting reason. If she gives proper written notice with the lender's written statement by the contract deadline, she is entitled to the deposit back.
Notice timing. The contract requires notice no later than 5 days before May 30 = May 25. The email is May 26 - one day late - and no lender statement was attached. On a strict reading the contingency lapsed and the deposit is at risk.
Wild card: bad faith. Carla co-signed a car loan after applying, which may have caused the denial. A buyer must pursue financing in good faith; deliberately impairing financing can forfeit the contingency. That is a factual question for the parties and their attorneys, not for the licensees.
2. Dave demands that Crescent Title release the $5,000 to him. What must the escrow holder do, and what is the broker's role?
Read the worked answer
The escrow holder must hold. When buyer and seller assert conflicting claims to escrowed funds, the holder may not disburse to one side unilaterally. It should:
- give both parties written notice of the conflicting demands;
- keep the money in its escrow/trust account, properly recorded and not offset against fees;
- disburse only upon (a) a written release or termination agreement signed by both parties, or (b) a court order, including an interpleader/deposit-into-the-registry action.
The broker's role: if the brokerage rather than a title company held the deposit, the same rule governs under LREC trust-account requirements - no unilateral release, no applying the money to commissions, no pressure on either party. Licensees may explain the contract language and the process, may offer to draft a mutual release for signature, and must not tell either party who 'legally owns' the money. If the parties cannot agree, refer them to their attorneys.
3. Does it matter that Carla's agent, not Carla, sent the notice, and that no lender letter was attached?
Read the worked answer
Yes, materially. The contract requires the buyer's written notice plus the lender's written denial statement by a stated date. An agent's email can be effective notice if the agent is authorized in writing to give it, but an agent cannot waive contract requirements or cure the missing lender statement.
Best corrective move, immediately:
- Obtain a written, signed notice from Carla.
- Attach the lender's dated written denial.
- Deliver both to the seller's side in writing and ask the seller to waive the one-day timing defect.
If the seller refuses: the seller will argue the contingency expired and the deposit is forfeited; Carla will argue the delay was a day, caused no prejudice, and the denial is documented. A court may excuse immaterial, non-prejudicial delay, but the licensee should not bank on it and must not give legal advice - route the parties to counsel while the escrow holder keeps the money frozen.