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Builder Requires Deposit for "Extras" DISCUSSION: Bob and Sally are moving to Georgia from New Jersey and plan to buy a home in an "upscale" subdivision. They begin negotiating with their builder to be certain that he includes all of their ideas for the "home of their dreams." The negotiations are nearly concluded when the builder states that he requires $35,000.00 as a deposit for the extras. Bob and Sally don’t know anyone in the state and are hesitant to hand over $35,000.00 to the builder before the foundation is even poured. What if he goes bankrupt or his business fails? Their Realtor explains that the builder is taking a risk by including all of their "extras" in the home. If they fail to close, he may not be able to recoup the cost of those extras when selling the house to another purchaser. SOLUTION: The BUILDER gives the buyer a security interest in the home in an amount equal to the extras. These funds will be due (and credited) to the buyer at the closing. This gives the buyer options in case of default by the builder. Meanwhile, the BUYER executes a Quit Claim Deed to release the security interest in case said buyer defaults on the sale. This is held by the attorney, in trust, until closing or default. If the buyer defaults, the attorney records the Quit Claim Deed to release the security interest in the house, and the builder is free to sell the home to a third party and retain the deposit. The attorney executes an EXHIBIT to the contract, which sets forth this procedure. Feel free to contact our office for details of this procedure or to discuss a similar matter. Our firm receives calls like this quite regularly, and we feel have developed a method to protect both parties that usually also gives them a sense of comfort in this process.
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