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Cancelling Contract On Home Purchase

Ask the Real Estate Lawyer: Real Estate Law Q&A

REM #LAW 680

By Ilyce R. Glink and Samuel J. Tamkin

Summary: A reader tried to purchase a home but due to financing problems and no clear title to the home, the contract was cancelled. Now the seller refuses to return the down payment. Ilyce and Sam explain that the wording in the contract will clarity who is in the right.

Q: I went into contract on a home last year. I needed an extension for the loan approval, and the sellers gave me the extension.
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I also needed to provide title. When I obtained the title report there were problems with the seller’s ability to provide a clear title due to past bankruptcy issues and foreclosure issues.

My attorney at the time said these were probably insurmountable, and my loan commitment expired. However, one month later the seller called to tell us that the title issues were resolved. I told my attorney that I wanted to walk away from the deal.

Now the seller refuses to return my escrow deposit and claims it was my fault. In the meantime the seller sold the property to someone else. Is the seller obligated to return my down payment if he sold property? Do I have to litigate this matter to get my money back?

A: These are questions you should be asking of your attorney. Has he been helping you in this transaction? If he has not been responsive to your questions, you should find an attorney who will be responsive to you.

The first thing you need to review is your real estate contract. The contract will state what happens if a seller is unable to deliver clear title at the time of closing.

Some contracts provide that the seller has thirty days from the date the title report is obtained to clear items that could impair the seller’s ability to close. Other contracts give the seller thirty days from the scheduled closing date to clear up title matters. Still others require the seller to have title cleared by the closing date.

When a seller is given additional time to resolve the title issues, and does resolve them within this time frame, the buyer is then required to close on the property.

If the seller failed to notify you in a timely manner, the contract may state that the contract would terminate and that the seller must return the down payment. If the seller refuses to return the down payment, you have the right to sue the seller to get it back.

On the flip side of the coin, if the seller solved the issues and was within the time limit to correct the issues, get the deal closed and you failed to close, your down payment was at risk and may now be lost.

The contract would state what remedies are available to the seller and to the buyer in case of a default by either party or termination of the contract. You need to review the default and termination provisions of the contract to see where you stand.

If you defaulted, the contract might provide that you lose the down payment. It might also say that the seller is entitled to any damages he or she sustained. If the seller has to prove damages and resold the property, the seller might have little or no damages.

If the seller sold the property for more money than under your contract, he or she would not have been damaged. But if the property sold for less money than you were willing to pay, the seller would be out the difference between your contract price and the price that he or she accepted, plus other expenses.

Finally, contracts sometimes contain a clause which permits the seller to keep the down payment in the event of the buyer’s failure to close on the purchase.

Some states and some courts have voided these terms due to the inherent unfairness of having, perhaps, a huge down payment lost by a buyer when the seller perhaps was not harmed in a material way.

You should sit down with your attorney and review the circumstances in your case, determine if you were required to close, and what the consequences were under the contract if you failed to close. Once you have a better idea as to these facts, you can make a better determination as to whether you are entitled to the return of the down payment.

If you are entitled to get the down payment back and the seller has refused to return it, you should move quickly. You don’t want the seller selling the house, moving across the country and not knowing where to go to get your money back.

If the money is sitting with the real estate broker and the broker won’t release it without the seller’s consent or a court order, you will have an easier time getting the money back if you know where to find the seller.

Samuel J. Tamkin is a Chicago-based real estate attorney. Ilyce R. Glink’s latest book is 50 Simple Steps You Can Take To Sell Your Home Faster and For More Money In Any Market. If you have questions for them, write: Real Estate Matters Syndicate, PO Box 366, Glencoe, IL 60022 or contact them through Ilyce’s website www.thinkglink.com