Dear Edith: When buying a home, is earnest money mandatory? Is it a must that I give my Realtor $500 as "good deed money," or earnest money? — J.C.

Answer: A money deposit is not a legal requirement for a sales contract. Your promise to buy is enough "consideration" to make the document binding.

There's a practical side to the matter, though. Without a deposit, you might have a hard time getting any offer accepted.

A seller would be nervous about tying the house up in a contract when you hadn't put up any of your own money as a token of good faith. You might feel free to back out later. Meanwhile the seller could have refused other offers, taken the house off the market, lost valuable marketing time and made plans to move.

Earnest money serves to reassure the seller that you really mean it and are committed to going through with the purchase. I don't think many potential sellers will feel all that reassured, though, if all you offer to put up is $500.

You don't really give the money to the agent, by the way. It must be held in a special "escrow" or "trust" account, untouched, until it becomes part of your payment when you actually buy the property.

What's A Short Sale?

Dear Edith: What exactly is a short sale? Does the lender have to approve of it? — K.

Answer: If you're in trouble with your mortgage and can't sell the property for enough to pay off the loan, a short sale is much better on your credit record than a foreclosure. You're lucky if a lender agrees to this way out of the problem.

Some lenders will do this only if you can prove you don't have any other assets to make up the shortfall and are just about penniless. But these days, with so many foreclosure problems, more lenders are willing to consider the matter.

Yes, the lender would reserve the right to look over the contract when you do find a buyer, and would have to approve the proposed sale price.

Agent Sounds Fishy

Ms. Lank: My question involves my Realtor. We are currently trying to sell our home. When having an open house isn't it right to put out an open house sign with time and day on the front yard, maybe a day or two in advance? My Realtor refuses to do so. Also, isn't it a confidentiality matter when your Realtor tells you the client interested has a trust fund? Is it right for the Realtor to even say what mortgage the couple was approved for and what the limits are? Things just sound fishy! — via e-mail

Answer: Your questions touch on the Law of Agency, and what specific fiduciary duties your agent owes you. One is "obedience to any lawful requests," so you may indeed have a right to whatever open house signs you want.

Another fiduciary duty is "confidentiality." Your agent must keep your information confidential, but does not owe that duty to others. On the contrary, your agent also has a duty known as "notice." It means that anything useful your agent learns must be passed on to you. That would include information, good or bad, about potential buyers' financial situations.

He's Buying Her Out

Dear Edith: I am married, but separated and soon to be divorced. I don't want to keep our house (too much for me to take care of and too many memories) and my husband has offered to buy me out. What should I do to ensure the buyout is fair and equitable? So far we have only had a CMA done by a real estate agent. — via e-mail

Answer: Sometimes each party hires an appraiser, with an agreement to average the two estimates as the sale price.

An even more important concern is the mortgage, if your name is on one. You would remain liable for the whole debt even after you had signed over your share of the house.

Perhaps the lender will agree to relieve you of responsibility if your husband proves he can carry the payments on his own. Otherwise, the only way to make sure you aren't faced with trouble later is for your husband to refinance in his name only.

Judging from the mail I receive, it isn't enough for the divorce decree to include one spouse's obligation to refinance. Lending institutions don't have to obey a divorce decree and you could some day have credit problems out of your control. Better make sure any mortgage situation is completely settled before you sign over your ownership.

Edith Lank will respond personally to any questions sent to her at 240 Hemingway Drive, Rochester, NY 14620 (please include a stamped return envelope), or readers may e-mail her at ehlank@aol.com.

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