Short seller of the house cancelled the escrow on the day of closing escrow. What happens now?

Asked by Jeff, Northridge, CA Mon Jan 26, 2009

I have found a short sale in which the banks have accepted. After two months (taking care of the sellers liens on the house) the escrow was about to be funded, instead of handing the key to the house, the seller cancelled the escrow. I have lost about $4000 on this deal (appraisal, loan fees, inspection). what happens now and what can i do now?

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Selling Buying Ryan’s answer
Selling Buyi…, Agent, Los Angeles, CA
Tue May 19, 2009
I agree with all of you. All the parties involved get a good Real Estate Attorney!

My assumption is that the owner seller funds some money or hit the jackpot in the Lottery and wants to keep the property.
There is no Law, that says Seller or Buyer can’t cancel any escrow, but they do have to face the consequences if that ends up in court.
Since you had Short-Sale, and buyers loan approval and all contingencies where removed, just before closing, is that what happen?
The seller could be liable for Escrow Charges, Selling and Buyer Agent, Commissions and miscellanies Expenses.
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BOB Khalsa, Agent, Newhall, CA
Tue Jan 27, 2009

Once again, this is not legal advice. To get that you need it from an Attorney.

You said that the Seller canceled escrow. By "seller", do you mean the lender/bank or the owner of the property? In a short sale the lender who holds the note or has given the mortgage is not the seller. The seller still is the owner on Title. You get approval from the lender of the Seller because the lender has to accept getting a lower amount back instead of the full outstanding mortgage. The lender does not give disclosures to a buyer. Only the owner of the property does that who has personal knowledge.

As has been mentioned by others in this forum, get legal advice for the situation you are in.

Good luck.

Bob Khalsa
Broker Owner
United America Realty
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Keith Sorem, Agent, Glendale, CA
Tue Jan 27, 2009
First, this is not legal advice. For legal advice talk with an attorney.
Second, I realize that you are frustrated. Without knowing all the details, seeing the paperwork, etc. I am not sure that this is the best place for you to get the advice that you need.
Third, the professional that is handling the purchase for you should be the primary provider of advice. That is their role.

So, in a brief summary:
Sometimes lenders involved in short sales have buyers sign an adendum. Did you? If so, what does it say? In many cases the forms stipulates what might happen and what your recourse might be.
Also, did you read the CAR Shortsale advisory?
One of the big problems in purchasing a short sale is exactly what you encountered here...invest time, money and effort, then get zero.

It should be noted that (disclaimer - generally speaking) if a seller back at after contingencies have been removed, and they change their mind, the buyer can sue for "specific performance". The seller needs to sell, or pay the buyer damages. Just because the sale is a "short sale" subject to lender approval, the seller still is the owner, meaning that they are liable to follow the purchase agreement.

I suggest that you talk with your Realtor, if they are not helpful, talk with their broker. If they are not helpful, talk with an attorney.

Sorry for your situation. Good luck.
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Steven Ornel…, Agent, Fremont, CA
Tue Jan 27, 2009
Hi Jeff, very sorry to hear this. Please let us all know the following:

1) Did you use the standard CAR Residential purchase contract?

2) Did a Realtor represent you?

An Escrow is an impartial 3rd party that must have terms from and by seller/buyer that match for the close of the escrow.

Personally, barring an equitable solution from using your purchase contract's clauses that cover this situation, your loss is within local Small Claims court jurisdiction ($7,500). Whether this is a simple breach of contract case or fraud (if intent can be proven) that allows for triple damages is unknown. I would also seek a free consultation with a RE lawyer.

Best, Steve
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Dallas Texas, Agent, Dallas, TN
Tue Jan 27, 2009
WOW sorry to hear all this. Your executed sales contract governs performance of buyer and seller. Review all with buyers agent what your legal actions can be taken towards seller. Best confer with attorney
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Paul Aragon, Agent, Granada Hills, CA
Mon Jan 26, 2009
Your appraisal shouldn't be more than $350, inspection no more than $300, and you shouldn't have to pay loan fees for a loan that did not record. Since the seller didn't perform, you can send over a notice to perform for the legally binding contract in the state of California (Residential Purchase Agreement). You should talk to an attorney about taking them to court and have the judge order a completed sale (hopefully the trustee sale is delayed). If you don't want to buy it, take the seller to small claims court and get your fees back. Real estate attorneys love these types of situations because they are easy to remedy. When in doubt, you should always consult a "Real Estate" attorney, not a general attorney. If you need the name of one, give me a call at 818-488-8038 and I can refer you to a local real estate attorney in Northridge.
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