What is the penalty for a bank to break a purchase contract?

Asked by Gabriela Greenwood, Phoenix, AZ Sat Dec 13, 2008

Our offer was verbally accepted, the purchase contract was signed etc...Then our realestate agent says a contractor made a cash offer, and they take their offer then ours. This is the second time it happens, I dont understand why an investor can just come along any time; and have our contract be disregarded.


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Dp2, , Virginia
Tue Dec 16, 2008
Actually, one doesn't always have to go with the title company of the bank (that owns the REO). In fact, many lenders will INSIST--or at least strongly recommend--that one uses a title company that already has a relationship with it. I insist on using my own or the lender's title company, because some banks will bury a clause within either the contract or addenda stating that the buyer will accept a title abstract in lieu of the actual title. A title abstract and title are 2 different things. I'll spare you the details--just know that you want the actual title.

Carlos is also correct that many banks are "behaving is border-line abusive" manner; they do it because they can, and because they know most consumers will sign the dotted-line without exercising their right to negotiate. However, now you're empowered, because you do know, and you'll be able to stand your ground with confidence.

Of course, I must admit I've had several listing agents to write me that a particular bank wouldn't accept my offer or some of my modifications. I kindly--but firmly--asked them to submit my offers/counter-offers as-is anyway, and told them the bank will counter or reject my offer/counter-offer if they didn't like my terms.
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Paul Welden, Agent, Scottsdale, AZ
Mon Dec 15, 2008
Hi Gabriela,

There is nothing that can be done. That being said, here is some advice.

You probably did not have an enforcable contract because you probably did not have a signed contract with the seller's signatures on it. If you did, then you can sue them, but more than likely, all you have is a copy of papers that only you signed & not the bank. Until you have the copy of the contract signed by the bank, the bank is free to accept any offer, even from an investor paying cash. Read the bank's addendums thoroughly. I'm certain it states that until the bank signs the papers, there is no enforcable contract and they are free to accepy any offer , even one from a cash investor, until they sign your papers & give you a copy. This is a common occurrence, especially with about 55,000 homes for sale. Welcome to the frustrating side of buying a home in our current market. Hang in there and you're certain to get a good deal on a better home.

Buyer's Agent REALTOR
Web Reference:  http://CheapPhoenixHomes.com
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Carlos Ramir…, Agent, Mesa, AZ
Sun Dec 14, 2008

When you say that the purchase contract was signed, do you mean only by you? I assume so since you say that it was verbally accepted. Even if it was only a verbal acceptance you might have a legal claim against the bank - probably their agent sent and email to your agent with the acceptance and that might be used against them. A real estate lawyer will be your best source of information on that case.

But in reality, given the amount of properties available your best course of action is to move to the next one - being aware that until you don't have a fully executed contract, with all addendums signed by all parties you do not have a real acceptance.

Unfortunately the way some banks (not all) are behaving is border-line abusive. Unfortunately if you want to buy and REO you might have to deal with that. I have seen many cases like yours and before placing an offer on an REO I am sure that the buyer understands the process and the way some banks behaves. For them the property is just an entry in a book and the buyer just another line. They don't care about anybody but themselfs.

They even force you to use their title company, who they make them mass produce the escrows. What used to take one or two days with my title company usually takes 2 weeks or more with their title company. In many instances I am not even able to talk with the escrow officer, who is also extremely overworked.

You can get good deals with some REOs, as you can also get great deals with some traditional sales since they are competing against each other. Just be ready next time you place an offer on an REO, as the reality is that many times they don't play fair and they don't see the human aspect of the transaction.

Good luck next time, and I am sure you are going to be able to get a great house for yourself!
Web Reference:  http://www.SmartAZRealty.com
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Dp2, , Virginia
Sun Dec 14, 2008
First, I'm not a lawyer.

Assuming you're dealing with REOs, many banks have contracts and/or addenda that contain a clause that basically binds the buyer and allows the bank itself to back out of the contract if they receive a higher offer before that property closes. This is a standard practice with most banks when dealing with REOs. It sounds like you have a realtor who lacks experience working with REOs, and that neither of you thoroughly read the contract and/or addenda (including all of the exhibits) all of the way through before signing.

In the future, check for that clause, and strike it out. Or if the bank insists on keeping this term, then immediately have your realtor to record your signed contract (with the clerk of courts). This will cloud the title, and the bank won't be able to sell the property free and clear without getting you to first remove your claim (which will function kind of like a lien).
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Doug McVinua, Agent, Gilbert, AZ
Sun Dec 14, 2008
Question: Did the bank break the verbal agreement or an agreement signed by both parties (you and the bank)?

If what I think you are saying is that the bank extended you an offer, you signed it but did not get it back from the bank signed you may not have anything to enforce. If the bank actually signed and returned the contract then it would be important to carefully look at the contract to determine if the bank had an out.

I would encourage your agent to work closely with the listing agent next time to try and prevent this from happening.
Web Reference:  http://www.McVinua.com
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Lucinda Tkach, , Phoenix, AZ
Sun Dec 14, 2008

That is very frustrating for you and your agent!

I contact the agent prior to submitting an offer and ask if they are submitting more offers. So far this has been helpful, however we still have no contol over what the bank does, It has become complicated. Some agents are submitting one offer and waiting for a reply on it. If the buyer cancels then they submit another offer. Other wise it becomes confusing!

With out a fully executed contract there is not a lot that can be done.

Windermere Central
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Todd Lee, Agent, Phoenix, AZ
Sat Dec 13, 2008
If you have a signed purchase contract by the seller (bank) and they breach it, then you may have grounds to sue for damages. Not knowing the full situation though it's hard to say. Your agent would be the person best suited to answer this question.

In short though, if you have a fully signed contract then the seller cannot just break the contract without cause or without risking themselves to a potential lawsuit... If you have a good agent they should be able to explain to you why this keeps happening and how to avoid it in the future.
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