should I go though with the contract

What is the name of your state?
california
hi my wife and i offer to buy a home, and the seller agree to sell it to use. just two week prior to closing, we got a letter from the seller stating the there are some legal issue regarding the seller and previous buyer. As i understand, the problem is this

Previous buyer agree to buy the property, he made the deposit but he was not able to secure the loan with a acceptible interest rate for him, he asked the seller to give him more time so that he either add his brother to the property and the loan applicant or even replaced himself as a buyer. the seller didn't agree to it and want to release the contract and keeping the deposit. the previous buyer agree to release the contract only if he get his 5000 deposit back. Now the seller agree to sell it to us and all the paper work is done, title is clear, offer had been sign and now the seller let us know this is the problem give option to back out with full deposit back or go through with it know this might be a problem down the road. we really like the home what should we do. the seller determined to fight for this deposit in the small claim court. will this problems between the seller and previous buyer drag us into this mess. thank you for your advice.

[HomeGuru]

Originally posted by vle02
What is the name of your state?
california
hi my wife and i offer to buy a home, and the seller agree to sell it to use. just two week prior to closing, we got a letter from the seller stating the there are some legal issue regarding the seller and previous buyer. As i understand, the problem is this

Previous buyer agree to buy the property, he made the deposit but he was not able to secure the loan with a acceptible interest rate for him, he asked the seller to give him more time so that he either add his brother to the property and the loan applicant or even replaced himself as a buyer. the seller didn't agree to it and want to release the contract and keeping the deposit. the previous buyer agree to release the contract only if he get his 5000 deposit back. Now the seller agree to sell it to us and all the paper work is done, title is clear, offer had been sign and now the seller let us know this is the problem give option to back out with full deposit back or go through with it know this might be a problem down the road. we really like the home what should we do. the seller determined to fight for this deposit in the small claim court. will this problems between the seller and previous buyer drag us into this mess. thank you for your advice.

**A: hire an attorney to review the issues and demand that when you close, escrow holds back $15,000 until the case is settled. And Seller signs a hold harmless and indemnification agreement.