Home Selling in San Diego>Question Details

Herb_manda, Home Buyer in New York, NY

Can a seller back out of a contract once it's in escrow. San Diego, CA

Asked by Herb_manda, New York, NY Thu Jan 31, 2013

If a home is already in escrow & pending sale, can a seller change their mind and back out? I think the buyers were supposed to close by the 10th of Feb 2013. My fathers realtor never had a pay off statement requested from his current mortgage company, he wrote up the contract with the GFE for an "estimated" amount he thought he owed. Now that a contract had been signed, they decided to finally request the pay off statement. It came in $45,000 higher than what my father had expected. Now instead of getting almost $70K back, he's getting $18K. My mom passed away very suddenly of cancer & he couldn't afford the mortgage. Every realtor in town swooped in on him during his time of greaving almost immediately after her death & I'm afraid he's been taken advantage of. The title is in a Family Trust, is there anyway to back out of this on the basis of "misrepresentation" on the GFE??? How can they tell you you're getting a certain amount of money & then suddenly say too bad so sad?

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Maureen Hanley’s answer
Hi Herb,

Sorry for your loss and the difficulties with the sale. I noticed you were considering a reverse mortgage as a way to salvage the house and give your dad another income stream and you are second guessing the sale. Reverse mortgages are not often a good alternative and if that is what is driving the desire to breach the contract then it's a probably a bad motivator. I'm not an expert on them but my understanding is they work best if someone has quite a bit of equity and is more advanced in age. This doesn't seem to be the case with your father as he is still of working age and the proceeds you mention from the sale don't indicate a lot of equity. He would end up in a loan after the equity is used up and no longer own the home.
As everyone has mentioned, you are discussing a legal issue, breach of contract, with realtors and lenders on this forum. Legal issues need to be handled by attorneys. Get one if you are really considering breaching this contract.
The other issue I see not addressed fully is the difference in the GFE. It seems a more active conversation needed to be had between your father and his lender so he knew the exact payoff amount. Perhaps, the difference is in the remaining interest or a pre-payment penalty? Perhaps, the new amount is an error or can be re-negotiated with his lender.
It doesn't sound to me that the realtor is responsible for this misommunication. He or she's not the lender or the principal. All he or she could have done is question your father more fully on the pay off amount and it's unlikely he/she would have reason to do so. Getting a pay off amount from the lender or asking your father to do so certainly would have helped but he/she relied on your father's verbal information.
Again, sorry for your loss, be careful of breach the contract without specific legal counsel and I wish you good luck working out this transaction to everyone's satisfaction.

Best Wishes to you and your father,

Maureen Hanley
0 votes Thank Flag Link Thu Jan 31, 2013
If your dad can't afford to keep the house you may want to consider continuing moving forward. If he gets to far behind on his payments he won't get any money at all.

J.R. Thrasher
0 votes Thank Flag Link Tue Sep 24, 2013
0 votes Thank Flag Link Tue Sep 24, 2013
I sympathize but this does happen . . . thankfully, rarely. Anyone can do whatever they want . . . sometimes with consequences though if someone chooses to pursue the offending party. Contracts are agreements made in good faith by all parties and aren't worth much if someone chooses not comply. It's the free will thing. Similarly, there's nothing physically stopping someone from running a red light. Best wishes to you. It's not a good situation.
0 votes Thank Flag Link Mon Feb 18, 2013
Has anyone spoken to the BUYERS and their agent about this unfortunate situation? Perhaps they would be understanding and be willing to cancel the sale-it's at least worth a conversation!
The Realtor is NOT responsible for ordering the official payoff demand-that happens once escrow is opened and is part of the escrow duties.
I have ordered demands on deals that were complicated or had unknown prepayment penalties, but only once the seller had given me the go ahead (fees are incurred!), otherwise I rely on the information provided by the seller for the mortgage payoff.
Should the buyers not cooperate, and your Dad still wants to cancel the sale, he definitely needs to speak with a Real Estate attorney who can advise him of his exposure and liability.
Best of luck to you and your family - I feel for you.
0 votes Thank Flag Link Mon Feb 18, 2013
I sympathize with your family and understand that this must be a huge disappointment. However, the Realtor cannot be expected to know the balance on your father's mortgage. A demand for payoff is never ordered by the agent and must be ordered by the home owner or escrow. Obviously escrow canno order this statement until an offer is accepted and escrow has been opened. As to whether your father can cancel the transaction: your family needs to consult a real estate attorney as soon as possible. There may be circumstances that will allow cancellation but you will need some good legal advice.
0 votes Thank Flag Link Mon Feb 18, 2013
Hi Herb,
With regard to the contract, I think the answer is pretty clear below. Unless the buyer defaults, it is difficult for a seller to get out of a contract without being liable for damages. With regard to the estimate, etc., you indicate that the Realtor wrote up a GFE for an estimated amount he thought he owed. Where did he get that information from? When I take a listing, I get the approximate amount owed from my client verbally (based on their last mortgage statement, any knowledge of prepayment penalty, etc.). We order the formal payoff demand in escrow. This practice is just based on not wanting to have to order multiple payoff demands as the closing date changes, which incurs additional fees to my client. It sounds like this whole situation has been a bit of a mess. I would definitely consult your real estate attorney to make sure that whomever is signing the paperwork has the authority to sell the property per the terms of the trust. I am very sorry for the stress you are going through. I would also make sure that the buyer is performing with regard to the terms of your contract. If for some reason they are not, you can start the process of cancelling them, and that might be the best course so that your father can explore all his options thoroughly.

Best of Luck!
Sinead McAllister
McAllister Homes Real Estate
0 votes Thank Flag Link Thu Jan 31, 2013
Thanks everyone for the answers. That is what I was afraid of, but thought it couldn't hurt to ask. I always worked the other end of purchases, underwriting & funding the loans. I know on several occasions we had purchases fall out of escrow on both the seller & the buyers parts, but that would be the end of it. We never heard anything else about it & what the specifics were. The 1st option all along was not to act out of emotion, sit in it for awhile & look at ALL possibilities. My brothers & sisters all collaborated to come up with options & weighed out the pros & cons of all options. There was a reverse mortgage option & we had several interested people for renting since its a desirable location, schools, shopping, etc. I think he panicked, saw the initial bottom line of losing 1 income & wasn't thinking. I still have people calling that want to rent the house for double what his mortgage is! We have an astranged half sister who is listed in the trust that hadn't returned the attorneys paperwork yet. So now that is my concern with the possibility of a clouded title!
0 votes Thank Flag Link Thu Jan 31, 2013
Sorry for the problems.
Generally the seller cannot back out of a legal contract to sell a home. Your father may be liable for damages or the court may order him to sell according to the terms of the contract. You need to talk to an attorney to get specific details.
The GFE is just an estimate. Who provided the estimated payoff figure? The payoff would not have changed the value of the property. What was the alternative to selling if your father cannot afford the home?
0 votes Thank Flag Link Thu Jan 31, 2013
I think the question becomes did he have the authority to sell it in the first place under the trust and goes from there...but it is absolutely a legal issue for an attorney to guide you.

Sellers and buyers need to crunch numbers before they sign...because this may just boil down to he isn't getting what he thought he was getting. In short, he signed up with the wrong realtor....the slick ones are the ones to watch out for!!

Also look at the Listing Agreement and decide whether that realtor was acting in your dad's best interest and holding up their end of the deal....or were they just going after the sale commission?

This would get even better if the listing agent was double ending the deal...

CA DRE 01775528
0 votes Thank Flag Link Thu Jan 31, 2013
The only way a seller can cancel an escrow is if the buyer defaulted on their end of the deal. Otherwise, the deal is a legally contracted. If a seller defaults, he or she would be vulnerable to litigation and a host of other problems.

While the situation you are describing is unfortunate, it stands legally.
0 votes Thank Flag Link Thu Jan 31, 2013
I am sorry for the situation in which you father finds himself.

I hope that you realize that you are asking if it is o.k. to default on a legal contract between your father and the buyer. Anyone who is not close to your father’s transaction and advises you that it is o.k. to break a contract is giving you dangerous information.

Worse, there seems to be some confusion about the Family Trust. (I suspect that you are the one who is refusing to sign.) In any event, that is a legal matter and must be taken up with an attorney…along with a legal answer to your original question.
0 votes Thank Flag Link Thu Jan 31, 2013
One more question to anyone who knows. What if the title is in a Family Trust & an attorney sent out a letter to the kids of this family trust to sign over their "interest" in the house and one of the siblings refuses to sign over their interest? Will that muck up the sale? I know trusts are super touchy & lenders get a little weary when a property title is in a trust.
0 votes Thank Flag Link Thu Jan 31, 2013
Thanks Michael, actually yes he can get more for the house! The estimate that the realtor brought to him before drawing up a contract spelled everything out with fees, etc. in the brokerage firm I worked in, we always pulled a pay off statement to get an accurate amount of what was owed on the mortgage BEFORe drawing up a contract for a buyer. Our sellers ALWAYS wanted to know what they would be getting back from the sell before signing a contract. Granted its been about 8 years since I've worked in real estate & I know things have changed drastically, but the difference of what he thought he was getting & what is now expected is HUGE for an elderly man who can barely afford to eat. This is matter of survival for someone who just lost his wife & is now having to sell the house he has worked his life for.
0 votes Thank Flag Link Thu Jan 31, 2013
I'm not sure why a Realtor would get involved with the GFE, as that's usually handled by the mortgage originator. But in this case, the term is self-explanatory as you pointed out yourself. It's a good faith ESTIMATE. It's not a promise or commitment. (It should be explained in the fine print of the contract.)

Sounds like somebody made some mis-steps along the way, but I doubt you have a legitimate reason to breach the contract. Of course, you should consult with a real estate attorney, which will unfortunately run you another $1-3K when you're already in a bind.

In any case, if your father can't afford the mortgage, then what good would backing out do for him? Unless you know you can get a lot more money on the house, then he should just take what he can get before he starts defaulting on the mortgage and get foreclosed.
Web Reference: http://www.archershomes.com
0 votes Thank Flag Link Thu Jan 31, 2013
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