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Fate of Earnest Money If Sale Falls Through

September 05, 1993

I was surprised at the inaccurate information that Robert J. Bruss relayed in his Aug. 15 column ("Who Gets Deposit Money If Sale Fails?").

He wrote that "if no solution evolves within a reasonable time, usually 12 months, the holder of the trust funds is supposed to interplead the money into court and ask the judge to decide who gets the good faith earnest money deposit."

Under the law, the escrow holder need not file an interpleader for three years, not one year. And if the escrow holder files an interpleader, they may recover their attorney fees and costs from the deposit for providing this service. So depending on the amount of deposit, there may not be much money remaining.

However, there is another alternative for both buyer and seller. By law, good-faith deposits held by escrow, which are to apply to the purchase price of one-to-four residential units, must be returned within 30 days after the party entitled to the funds demands them.

A seller or buyer wrongfully refusing to release an escrow deposit is liable for a money penalty three times the amount wrongfully withheld, but not less than $100 nor more than $1,000, plus attorneys fees (Calif. Civil Code Section 1057.3).

Since the forfeiture-of-deposit provision does not entitle the seller to any funds, the seller must release the escrow deposit to the breaching buyer, unless he has out-of-pocket losses. If the seller fails to release the funds within 30 days, the seller will be liable for the $100-$1,000 penalty.

The party entitled to the funds must make a written demand to escrow for the release of the funds. If the funds are not released within 30 days after written demand, the party then must file suit to force the release of the deposit. The escrow agency then deposits the funds with the court, relieving escrow of any further responsibility to account for the funds.


Co-owner and manager

Roadrunner Escrow, Palm Desert

Confidence, Reporting Lag But Home Sales Up

It took until Page K9 and a story that measured only 2-by-3 inches ("Home Sales Rise in Valley," Aug. 15) to tell the public that sales of homes in our San Fernando Valley rose a whopping 23.6%.

This is a huge jump! If this were news of a sales decrease of the same proportion, it would have made the front page in large bold print. Come on you guys! With interest rates as low as they have been in 20 years and prices as low as they've been in 10 years, the only thing this real estate market is lacking, is confidence and knowing that other good people are buying houses too. Let's shout the good news!


Coastal Development Co.


Water Gardens Pose Risk for Children

Your article, "Small-Space Water Wonderland" (July 11), described the delights of patio or balcony tub gardens filled with water lilies and goldfish for folks who have no room for exotic back yard pools. They sound lovely, but. . . .

The words, "Children find these miniature water kingdoms fascination . . . " should have run a red flag up the pole. Small children, who are top heavy, can drown in only a few inches of water if they tumble head first into a container, and a toddler reaching into a tub for a goldfish or exotic flower is possibly at even more risk than a child poolside, because an adult may not perceive something as idyllic as a tub filled with exotic water plants as a danger.

Please warn your readers to exercise caution and common sense, so the "joys of water gardening" don't turn into a tragedy for their own child or one who is visiting.


North Hollywood

Mortgage Principal Not Home Office Deduction

In his article headlined "Home Office Is Tax Deductible . . . Sometimes," R. Daniel Foster gives an example of a 200-square-foot office in a 2,000-square-foot home. He states that 10% of all household expenses could be written off, including "rent or mortgage payments." It's a mistake to say that 10% of the mortgage payments is deductible. A homeowner who has a home office can deduct a portion of interest, taxes and insurance, plus depreciation, but mortgage principal is never deductible.

Foster states, "It's unwise to claim a home office deduction during the year a home is sold" because some of the gain on the sale of the home would be taxable. If the person had claimed a home office deduction in previous years, then this statement could be misconstrued as an invitation to cheat. Is Foster suggesting that it's OK to claim a home office deduction as long as it's not claimed during the year the home is sold? When a home is sold, the IRS might look at previous years returns to see if the person claimed a home office deduction. If so, they might say that some of the gain on the sale of the house is taxable because part of the house was used as an office in previous years.


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