Recourse For Spouse’s Misuse Of Community Funds

Question: After seventeen years my husband and I have been having serious marital problems. When I was back in Minnesota visiting my parents recently, my husband signed a contract to purchase a condominium in Mesa in his name only. The $10,000 earnest money was “hard” or nonrefundable after the 10-day inspection period. My husband couldn’t get a mortgage loan in his name only, however, so the purchase contract was canceled. The seller now refuses to refund the $10,000 “hard” earnest money. We are still trying to save our marriage, and my husband has apologized to me. Have we lost the $10,000 earnest money, even though I never signed the purchase contract or agreed to anything?

Answer: Your husband was probably not acting on behalf of the marital community by using $10,000 of community funds without your consent to buy the Mesa condominium as his sole and separate property. Therefore, you should probably be able to get the $10,000 earnest money back.

Note: Under the standard purchase contract, if a buyer defaults the seller has the right to either accept the earnest money (in your case, $10,000), or return the $10,000 earnest money, and then sue the buyer for any loss in value of the home during the escrow period. For example, real estate values in Arizona plummeted in only 30 days during the “2008 crash.” In other words, if the purchase price of the Mesa condominium was $700,000, and your husband canceled the purchase contract for failure to get a loan, and because of a rapidly falling real estate market, a subsequent sale of the Mesa condominium by the seller to another buyer 30 days later was only for $600,000, the seller could return the $10,000 earnest money and then sue your husband personally for the $100,000 difference in value. Community property should still not be liable for this $100,000 loss by seller. Only the separate property of the husband, e.g., inherited property, would be liable for the $100,000 loss.