Understanding the Real Estate Process from A – Z – A Buyer’s Guide to Real Estate – Part 13
This is the thirteenth post of a series in an FAQ format that I hope will help would be buyers better understand the real estate process that they are about to go through. There is a follow-on series to the posts for real estate sellers.
FAQ - What if everything didn’t go well and I need to cancel the deal?
Every so often a deal will go south. That is usually due to things like the buyer not being able to get the mortgage that he/she thought that they were pre-approved to get or perhaps because there was a defect found in the home inspection that the parties could not agree upon a resolution for or that the buyer just couldn’t live with (the presence of asbestos, radon or mold often cause this problem).
In cases where there is no way to move forward with the deal you will need to document the end of the deal. There is a document that we use locally called a Mutual Release of Purchase Agreement and there are probably variations of that document in every state. The Mutual Release basically states that the obligations contained in the Purchase Agreement are declared to be null and void and it specifies how the dispersal of the Buyer’s Earnest Money Deposit (EMD) is to be handled – usually just given back to the Buyer.
Occasionally there might be a disagreement between the Seller and the Buyer that cannot be amiably
If the failure of the Buyer to perform on the contract is due to his inability to get a mortgage or is the direct result of his dissatisfaction with the inspection results or the results of the title search, the Buyer is on pretty firm legal grounds to declare the contract to be void and get the Earnest Money Deposit back in total. If there are issues resulting from the inspection that the seller refuses to fix, it is usual that he may also declare the contract to be void.
It is a somewhat gray area if the Buyer does one of the stupid things that I warned against in an earlier post and his approval for the mortgage is impacted. A seller could make the case that the Buyer had met the requirement for financing that is in the PA and might balk at letting the Buyer out of the contract AND giving him his EMD back. I have also seen one case of Buyer’s remorse right before closing that resulted in the contract being voided and the Seller keeping the EMD deposit. The Buyer was out several thousand dollars in that case.
If the Seller just gets seller’s remorse and decides not to sell, there is little that the Buyer can do except take the Seller to court and ask the court to force the Seller to honor the contract. A reasonable amount of court cases have been tried and have resulted in the precedent that the courts are reluctant to force an owner to sell. Of course, the Buyer would get their EMD back, but they would still be out several hundred dollars to the mortgage company for the sunk-money expenses of the loan application and the appraisal, as well as the home inspection. There is little recourse for the Buyer to recoup those expenses, other than an attempt through the small claims court. The Buyer should consult his attorney for guidance on that.
As the Buyer, at this point you will need to start over with a new search for another property. You will be a wiser Buyer this time.