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Our first attorney threat!

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I received my first "I'm going to talk to my attorney about this" threat. I called an applicant to tell her her and her fiance ( the co-applicant) were accepted for this house and that we would like to set up the appt to do the L/O paperwork within the next two days. She said her and her fiance had a falling out and they were going to have to back out and could not take the house. She asked if she could have her non-refundable reservation/earnest money back. I told her no that if she is accepted and then decides no that it is non- refundable. We use an Application Receipt Agreement that states that this is non-refundable if they change their minds. I told her to make sure to take that to her attorney. What do you think? Am I ok here? Do I need to do anything as far as the co-applicant is concerned?

 

Thank you,

 

Angela

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*Angela, the devil is always in the details. I suppose it will come down to what your paperwork specifies, and what local code has to say. In the meantime, I wouldn't be issuing any refunds until something definitive dictates that you do.

 

 

 

 

*I am not an attorney. The opinion offered above is just that, my opinion, and should be taken with a grain of salt and a shot of Jack Daniels, and possibly even ignored altogether. ;)

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Hi Angela,

 

As you can tell by now, because MC has played a lawyer on TV for several seasons now, including his current hit part on "The Hung and the Listless," he's even starting to sound like a lawyer. :unsure:

 

He's right, the ultimate outcome will depend exactly on how all the documents were worded. I would be polite, stand my ground (i.e. don't refund it just because you get a mean lawyer letter in the mail demanding a full refund), and not spend the money for the time being. :D

 

If your almost-tenant is serious about pursuing the matter it will probably be in Small Claims Court where it will be "mana-a-mana" her v. you as lawyers aren't allowed in Small Claims Court because they tend to gum up the works by making the court room smell like gin, filing all kinds of papers, making objections, and generally making nuisances of themselves. :)

 

The Judge will listen to both sides, send you home then make a decision later...they don't want the litigants wrestling in the hallway, which they tend to do if they know who won. :o

 

Good luck, and if you want to brush up on your courtroon technique be sure to watch several "H&L" episodes just before the court date.

 

Mike P. B)

The Legal Eagle

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Thanks for your input Michael and Mike. I am going to stand my ground. I have not heard anything more from her yet. (Maybe I never will!) ;)

 

Angela

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She asked if she could have her non-refundable reservation/earnest money back.  I told her no that if she is accepted and then decides no that it is non-refundable.  We use an Application Receipt Agreement that states that this is non-refundable if they change their minds.

I'm sorry to weigh in late on this, but I don't have the same perspective here as your other responders.

 

Because of the way you worded your question, and the fact that your receipt is called an "Application Receipt", I take the position that the deposit is really an application fee for your lease agreement. In many jurisdictions, there is a limit on the amount of the application fee you may charge without any refundability. For example, in Maryland, an application fee up to $25 requires no accountability and may be non-refundable. When the fee is greater than $25 then an accounting is required if any portion of the application fee is to be forfeited. Any direct costs not actually incurred in "processing" the application must be refunded.

 

I am assuming that your local landlord-tenant laws also prescribe similar treatment for lease application fees. In my devil's advocate view of things, I suggest that the court will view your application fee in this same light and force you to refund any portion not actually spent. Depending upon the amount involved, the court may also rule that your non-refundability declaration is a violation of the landlord-tenant laws and not enforceable.

 

The court may ask how you were damaged since the Lease Agreement was never executed, especially if you never spent any money on credit checks, criminal background checks, etc. If you were not damaged, the court may just order a full refund because courts tend to be tenant friendly.

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Dave, you sure you weren't an attorney in a previous go round?

Actually, Angela, he may be right depending upon the specific wording in the document you used, and local code. My Lease Application is called just that. It specifically mentions that a "nonrefundable application fee in the amount of (fill in the blank) has been paid. Now, if the applicant is also paying me some option consideration to hold the deal, I hand them a receipt stating that this money is nonrefundable unless their Lease Application is rejected. I figure that by keeping these monies distinct I have a stronger argument for retaining the option consideration if the applicant is accepted and then has a change of heart.

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MC et al.--

 

In light of the above, what about another form in the Naked-Investor arsenal that is essentially recitals regarding the option consideration?

 

It could be a document where the investor acknowledges receipt of $X for option consideration and the tenant buyer specifically acknowledges that the $X option consideration is non-refundable.

 

I know it's another form to hassel with :lol: , but it might help in the long run. :unsure:

 

What-da-ya-think?

 

Mike P. :)

The Legal Eagle

 

p.s. I would still use the "stare-um-down" strategy for Angela's case.

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Well. Since I am so new. I have to ask a question. So we pretty much shouldnt use the word "application fee" or any sort in our lease agreements. I thought it was a non-refundable option deposit not a lease application fee....I would assume that keeping that app fee phrase out of the agreement would help.

 

Let me know...

 

Thanks,

 

Akin

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Akinwale,

 

An application fee is perfectly acceptable. It is intended to cover the costs you incur in running a credit check, reference checks, employment verification, previous landlord check, and criminal background check. In many jurisdictions, the landlord-tenant law contains specific requirements the landlord must follow in handling the lease application fee -- to include a refund of any portion of the fee not actually spent in processing the application.

 

Option consideration given in conjuction with your option agreement should be handled separately with a NON-REFUNDABLE OPTION CONSIDERATION RECEIPT given to the optionee.

 

This response only expresses my opinion of how to document your transaction. Whether you would fully refund option consideration received in the situation outlined in the original post is up to you. To me, good will and a good reputation for fair business dealing are important and may result in positive referrals later. To maintain good will and to foster a fair in business reputation, I would have fully refunded all monies received in the situation described in the original post.

 

I am not an attorney, just a simple landlord.

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Well. Since I am so new. I have to ask a question.  So we pretty much shouldnt use the word "application fee" or any sort in our lease agreements.  I thought it was a non-refundable option deposit not a lease application fee....I would assume that keeping that app fee phrase out of the agreement would help.

 

Let me know...

 

Thanks,

 

Akin

 

Ok. Thanks Dave. So just to make sure I undestand..you would have a applicaiton fee ($25) & credit authorization form to run the credit, etc. as well a NON-REFUNDABLE OPTION CONSIDERATION RECEIPT (which states how much was given for option deposit and that it is not refundable) correct??

 

Thanks again.

 

Little steps will get me to the point where I will be in stride.

 

Akin

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Ok. Thanks Dave. So just to make sure I undestand..you would have a applicaiton fee ($25) & credit authorization form to run the credit, etc. as well a NON-REFUNDABLE OPTION CONSIDERATION RECEIPT (which states how much was given for option deposit and that it is not refundable) correct??
I'm not Dave........but that is correct. :)

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That's right. The lease and the option to purchase are two separate things. Keep them separate with your documentation. If you charge a lease application fee, give a receipt just for the application fee. Give a separate receipt for the non-refundable option consideration received.

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That's right.  The lease and the option to purchase are two separate things.  Keep them separate with your documentation.  If you charge a lease application fee, give a receipt just for the application fee.  Give a separate receipt for the non-refundable option consideration received.

Perfect straight forward answers. Thanks much MC and Dave...

 

Akin

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