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  1. #1
    Airtex is offline Junior Member
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    Exclamation Can seller back out of contract before closing deadline?

    What is the name of your state (only U.S. law)? Texas

    Hi, I just got news from my real estate agent that the seller wants to cancel contract based on a very vague excuse. The exact wording to my agent is quoted below:

    "We have been informed by the Seller that this property will have to be re-foreclosed on to clear up issues, so they have no choice but to cancel the sale. As of right now, this is the only information we have been given. Please have your Buyer sign a termination of contract and release of em (returning it to the Buyer) so I can send them to the Seller for signature."

    After the contract was signed, about 2 weeks ago, per contractual agreement, I paid for an inspection plus an appraisal totaling nearly $1,000 plus an additional $1,000 earnest fee. Not only that but I have to pull money from my IRA account to meet the loan obligations. After meeting all my financial requirements, I notified my apartment that I will vacate within 60 days per their requirement.

    A little history about this home. It was on the market and was sold in the past but the original buyer's finance did not go through. Unfortunate for the seller, it was on the verge of foreclosure but as soon as the property was re-listed, I offered to buy it at the exact price but from what I was told it was too late because the foreclosure proceedings had began. From what I'm told, however, I'm not 100% sure, the previous owner was trying to make a quick sale but owed less than the sales amount. I thought I had to wait for foreclosure proceedings to begin before I can bid again but as luck may have it, the foreclosure party accepted my bid. I'm assuming this was to save them having to go through the delays and bidding process. Regardless, I was given until the 15th of June, 2011 to close and the only thing I'm waiting for is my check from my IRA account to show financial capability.

    I was initially worried about my finance, therefore, I waited until everything was secured before I notified my apartment. All of a sudden, I'm getting this news and I searched this forum and the internet but couldn't find anyone with a similar situation, therefore, I'm hoping someone here can help. Many people advised to read the contract, for which I just did and found the following, that at the moment didn't look so bad until now. Please see below the statements I found from my contract:

    Negative Sale Proceeds. If unforeseen judgments, liens, assessments, HOA assessments, or other such encumbrances result in negative sales proceeds to Seller, Seller reserves the right to terminate the Contract and this Addendum and return the Earnest Money to Buyer as Buyer's sole and exclusive remedy.

    Understandable and acceptable.

    But here's another clause:

    "Default. In the event Buyer defaults in the performance of the Contract or this Addendum, the Earnest Money shall be paid to Seller as liquidated damages for, among other things, the additional cost of carrying the Property and lost marketing time, both of which Buyer and Seller acknowledge and agree are difficult to calculate. Said liquidated damages shall not be construed or deemed to constitute a penalty and the right given to Seller to retain the Earnest Money shall not constitute Seller's sole and exclusive remedy...."

    If I'm not mistaken, this clause basically allows the Seller to pursue more than just the Earnest Money.

    And here's the kicker, word for word from the contract:

    "In the event Seller defaults in the performance of the Contract and this Addendum, Buyer shall be entitled to a return of the Earnest Money as Buyer's sole and exclusive remedy."

    That's a double edge sword. This effectively means that, as a Buyer, you're entitled to lose everything while the Seller is entitled to lose nothing if they default.

    While it is indeed on the contract, I question whether or not it is enforceable since it is grossly unfair. I had to initial this clause but didn't have to initial the other one, for obvious reasons. But for future guidance, if I didn't agree to the clause, will this affect my purchase?

    BTW, I almost failed to mention, I believe they're trying to cancel the contract because the appraisal of the home turned out to be much higher than the sales price, almost by $40K. Do I have any legal recourse if this is true? Can I force them to give me a detailed explanation for the cancellation or must I sue to get it?

    Sorry for such a long posting but I figure we must know as much as we can to really be able to help.

    Thanks,
    AirtexWhat is the name of your state (only U.S. law)?
  2. #2
    Stevef is offline Senior Member
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    Quote Originally Posted by Airtex View Post

    "In the event Seller defaults in the performance of the Contract and this Addendum, Buyer shall be entitled to a return of the Earnest Money as Buyer's sole and exclusive remedy."
    It seems pretty one-sided, but those are the terms you agreed to.

    You can always sue, but I suspect it would cost you much more than $1000 to do that.

    You can also negotiate to have the sellers reimburse you for your expenses in exchange for signing the release.
  3. #3
    Airtex is offline Junior Member
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    Thanks Stevef,
    I agree it's one-sided, but for future guidance, can I not agree to that term when making a purchase but still proceed with the purchase? Keep in mind $1,000 is not all that I'm losing. This is like a legal right to steal but if I can't do anything about it to get my money back, I would at least educate all buyers out there to at least be aware of the potential risk involved. Can I post this Seller's info to inform buyers of their shady contracts without legal recourse?

    Thanks,
    Airtex
  4. #4
    Airtex is offline Junior Member
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    Just an FYI,
    Finally got word from the Title company when I tried to close to force them for Specific Performance. I was told this: "loan servicer and foreclosure attorney have determined to foreclosure held on December 7, 2010 to be invalid. As a result, the property must go through the foreclosure process again." I'm pretty sure that means I can't sue them for Specific Performance. The strange thing is I can't even get ahold of the Seller's contact info, the listing agent stated they're not allowed to disclose. Smells fishy?
  5. #5
    Zigner is offline Senior Member
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    Quote Originally Posted by Airtex View Post
    Thanks Stevef,
    I agree it's one-sided, but for future guidance, can I not agree to that term when making a purchase but still proceed with the purchase? Keep in mind $1,000 is not all that I'm losing. This is like a legal right to steal but if I can't do anything about it to get my money back, I would at least educate all buyers out there to at least be aware of the potential risk involved. Can I post this Seller's info to inform buyers of their shady contracts without legal recourse?

    Thanks,
    Airtex
    Don't post the seller's info. Nothing "shady" occurred.
  6. #6
    justalayman is offline Senior Member
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    Not fishy at all. That is why they hire an agent.

    what doesn't make sense, to me anyway is:

    if it was already foreclosed on, the owner has no standing to do anything with the home. If it has not been foreclosed yet, the individual owner is still the owner and can sell the property. As long as it isn't a short sale, there is no reason they shouldn't be able to complete the sale without involvement from the lender that is foreclosing.


    If it must be "foreclosed again", that would suggest that while you had made an offer, it was already presumed to be owned by the bank. If so, the owner (the private individual) would not have a right to enter into a sales contract.


    So, who was your contract with; the private owner or the lender?
  7. #7
    Airtex is offline Junior Member
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    Hi Zigner, justalayman,
    Thanks for your replies. The only thing I know about the Seller is, unfortunately, their name. I don't intend to disclose personal information however, just enough public information about the Seller so that others who may come in contact with them in the future does not sign the contract for obvious reasons.

    And to answer the question for justalayman, I entered into a contract with the lender. The house was originally up for sale by the owner and there were actually 2 prior bids but from what I was told, the buyer's finance didn't go through which was why the property went back on the market. I jumped on the chance but was told the next day it was too late because foreclosure proceedings had already began. I didn't think it was possible to buy the home anymore but then got word that the foreclosure people accepted my offer and that's when I signed a contract with them instead. After all the money I paid into the inspection and appraisal, they all of a sudden said this. The reason it sounds fishy to me is because, according to what I was told, this house went into foreclosure since Dec. 2010, that's 6 months ago but up until a week ago, before my appraisal that found the house to be worth 40K more than the selling price, everything was fine? One thing you mentioned sounded odd to me, however, is the fact that the owner can't sell if it's pending foreclosure? If that's true, then how was the owner able to list the property for sale a month ago? Perhaps the finance for the buyer was fine but that the property couldn't be sold because it was pending foreclosure? I wasn't told that but if it's true, then indeed I have no other choice.

    Regards,
    Airtex
  8. #8
    justalayman is offline Senior Member
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    , I entered into a contract with the lender.
    then that answers everything. If there was a problem with the foreclosure, they had no right to sell the house to you since they didn't own it.

    One thing you mentioned sounded odd to me, however, is the fact that the owner can't sell if it's pending foreclosure?
    It wasn't me that said that.

    this is what I said:

    if it was already foreclosed on, the owner has no standing to do anything with the home.
    and I stand by that. A house is not foreclosed until the lender the judge bangs the gavel (if a judicial foreclosure) or the house is auctioned (if a trustee sale). Up until that time there may be a foreclosure action pending but it hasn't been foreclosed...yet.

    actually, in your situation, since they have to start over with the foreclosure process, you might be able to purchase from the private owner.
  9. #9
    Airtex is offline Junior Member
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    Alas, that's what I thought as well! Indeed they couldn't sell because legally it's not theirs to sell, which gets them out of the contract, but by re-foreclose, it means they have to start the legal process all over again, therefore, the original owner has the right to sell. Guess I understand it correctly after all, just need to find a good lawyer now!

    Thanks mucho!
    Airtex

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