Seller defaults on closing

[azzirnyw]

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

Hello, my family is in dilemma right now and any advice from you will surely help. We're first time home buyers, excited to own our first home. We originally put in our offer to the house we're under contract in right now in 6/2008 and was accepted 2 days after. We're using VA loan and our original closing date was 7/26/2008. The first 2 floors of the house was just perfect - everything was brand new. It was put in the market in Feb 2008. The former seller's agent turned off the electricity sometime February-March and no offers were received in the house due to the lockbox not being placed in the property. Due to the electricity being turned off, the basement grew mold but we were assured by the sellers that it will get fixed before closing. The seller basically invited bids to do the basement rehab, stripping all the drywall, treating the walls from water damage and spraying treatment for the molds, then, put back new drywall and carpeting, etc. The seller is a corporation - professional flippers, based out of Utah. Two weeks before closing, no work was done to the basement, our agent initiated to add an addendum extending the closing date 30 days after on 8/26/2008. Come 2nd closing date, still, no work has been done to the basement rehab. The seller's reason is they have not chosen a contractor to do the basement. Our agent initiated the third extension for the closing date on 9/26/2008. Finally, after the 3rd extension of the closing date, work on the basement started. The walls were stripped off, including the insulation in the basement, ceiling, etc. While the walls were bare, we had our home inspection, just last week. The contractor found out that the studs in the basement were poorly done (crooked, incorrect sizes, etc.), so they will have to redo the studs and the frames before they put the dry wall back. This was not part of their original contract with the sellers. The contractor quoted them more, obviously to do the repairs. Now, the work is on hold and we just turned in our notice to our the apartment complex that we will be vacating on 9/30/2008. Our agent gave us a few options:

1. Sign another extension and HOPING that they will do it within the timeframe the sellers say they would.
2. Offer the sellers to leave the basement unfinished and cut $20,000 from the purchase price of the home.
3. Back out of the contract.

For us, these are NOT options. Either way, we lose on these. On our 3rd extension, we did include a clause that if they delay again, they would pay $300 extra to cover for the difference in our current rent because we went from a one year contract to a month-to-month. The sellers crossed it out, then, signed the extension. In Columbia, MD, there is not much inventory of houses that buyers can really choose from. We do not want another house. We fell in love with this house, the size is just right for us and there's room to grow, the location is good both for work and school, and the school system is very good for our kids.

We wanted to know based on all your experiences and expert opinion, if:

1. My family has the right to litigate the sellers for extra expenses that we shouldn't incur due to them causing the delay in the reconstruction of the basement. By the way, it is in our contract that THEY will fix the basement before closing date. At the end of this month, we will literally have no place to live.
2. If the seller is the cause of the delay, should it be the seller's agent initializing all the extension addendum for the closing date?
3. What are the buyer's rights when the delay in closing is due to the seller?
4. Can we sue the sellers for breach of contract and charge them with damages?

Thank you for all your expert opinion.

Desperately seeking your advice,
Azzirnyw

[nextwife]

Why didn'y you just deduct and escrow 1 1/2 times the estimate with the title company and have the work done aftedr closing?

[azzirnyw]

That's an option that we are thinking of right now just to be able to settle at the end of the month. But prior to deciding, we wanted to know if there are other possible options. Our knowledge about the real estate laws are so limited, and we feel like we (our agent) initiate all these extensions when the default is on the seller.

Question for you.. where did you get the 1 1/2 times the estimate?

Thanks for your reply.

Desperately,
Azzirnyw

[nextwife]

That's a kind of standard figure, the percentage I normally see used in repair escrows. This allows a cushion in case the estimate is low.

[azzirnyw]

Our original purchase price with the finished basement is $415,000. The seller is supposed to rehab the basement with the mold treatment and they will have to spend for the reconstruction. Our question is if we accept the unfinished basement (of course, after the mold has been treated) which will put the purchase price to $395,000, will that affect the appraisal by the bank and, is $20,000 decent enough for us to finish the basement?

At this point, the most important thing is to close at settlement at the end of the month and get my family to own the house. Like I said, the 1st 2 floors are very livable almost like brand new.

Thanks, again.

Desperately,
Azzirnyw