Q: Dear Mr. Jones; I found your 18 May, 2013, article on the Daily Republic website. I’m afraid my wife and I are in a similar position to that of the couple from Arkansas. We are in escrow (our offer was accepted and contract signed on 16 July), and our Realtor was meeting with the sellers’ Realtor and the seller on Friday to provide our signed removal of contingencies and letter of intent from the bank to finance the purchase. According to our Realtor, the seller initialed the paperwork, but then refused to sign on the bottom line, informing the two Realtors that she’d changed her mind and now wants to lease the property instead. Both our Realtor and the sellers’ Realtor were shocked and told her that she might be open to legal action, to which she responded that she didn’t care, almost seeming to invite a challenge to this situation. I asked our Realtor if the seller had provided anything in writing, to which our realtor said, “No, she just didn’t sign our removal of contingencies, and told us she was backing out.”
As far as we are concerned, we are still in a deal, and are going to continue to perform on our end by finalizing the financing, but what do we do when we want to close escrow and she refuses to sign? The way I read your article, my wife and I are in a contract with the seller, and the decision to accept our offer meant that the sale was effectively made at that point, only to be consummated at close of escrow. We lived up to our end of the bargain, providing contingency removal and intent to fund three business days ahead of the due date, no less. However the seller seems to think she can change their mind. Both our Realtor and hers were livid, suffice it to say, but we are fit to be tied ourselves. We appreciate your time and concern.
A: I’m glad my column was helpful and you certainly appear to have analyzed the situation correctly.
Just from my experience recently, and given our market conditions, this is becoming a problem; the cause of which is easy to figure out.
Sellers get into a contract with a buyer with an average closing of escrow date 45-60 days in the future. During that escrow period they see, or at least think they think they see, the value going up 5 to 8 percent.
That may not sound like much, but an extra 5 percent in the sales price of a $350,000 house is $17,500. That’s a new car or a very nice European vacation!
So the seller is then motivated to back out, perhaps with some anger towards you, your Realtor, or the seller’s own Realtor for having given away the house too cheaply.
Still, you are 100 percent correct in that the deal was made at the time the seller accepted your offer.
As I’ve said hundreds of times over the years, which bears repeating here, is there are very few weasel clauses that allow the seller to back out of a purchase contract upon the happening of some event.
For example, in a typical sale, if the buyer is unable to get their loan despite their best efforts they can back out. If an inspection during the contractual inspection period turns up a problem that the seller is unwilling to repair, the buyer can choose to walk away.
Similar provisions for the benefit of the seller are rare.
Consequently, the seller’s prerogative to back out, as in this case, just doesn’t exist.
That begs the obvious second question, “So what do I do now?”
Assuming you aren’t interested, or the seller isn’t, in negotiating a buyout of the contract (i.e. the seller gives you cash and you agree to cancel the contract) the only route left to you is a lawsuit.
Such a lawsuit involves two major components; the suit itself and the secondary recording of a lis pendens. The lis pendens, as regular readers will likely recall, is simply a notice which, when put on the public record, indicates there is a lawsuit regarding some ownership right in the property.
The result of the lis pendens is a cloud on the title of the property that effectively prevents the seller from selling it to someone else while the lawsuit proceeds to its conclusion.
I wish there was an intermediary, less expensive way to proceed. But if one or both sides are unwilling to work out a compromise, court is the only route to resolving the issue.
Tim Jones is a real estate attorney in Fairfield. If you have any real estate questions you would like to have answered in this column you can contact him at SolanoScene@TJones-Law.com.