Who's contract agreement is primary?

Asked by Paul Dekorte, Wyoming, MI Thu Jul 26, 2012

A seller and first buyer agreed on a contract. First buyer can't come up with financing. It isn't looking like they will be able to close by the end date. They then sign a new contract with me. Subject to the release of the first agreement. First closing date comes and goes. It seems I am now the primary buyer. But first buyer goes to seller days later and convinces them to sign an extension. Who now has the primary contract?

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5
Elvin Carroll, Agent, Grand Rapids, MI
Fri Jul 27, 2012
Hi Paul,

You ask a very important question. Unfortunately this situation is a common occurrence. I will attempt to guide you through this. Now understand that there is so much information you did not share when you wrote your question. For instance, I don’t have your contract in front of me. I also don’t know what kind of contract you have: One that is a standard real estate purchase agreement, whether it’s one written by seller, or you; whether either of you are represented by a Realtor, whether you are buying from a For Sale by Owner (FSBO). There are many variables, it gets complicated, but based on what you shared I would say that the first buyer may be the primary buyer. However, I see opportunity for you to enforce your contract with seller depending on the results of further investigation.

When the seller contracted with buyer 1, they essentially agreed to exchange the property. Assuming they have a valid contract, they are free to modify it as long as all parties subject to the contract mutually agree. When the seller signed a contract with you, buyer 2, subject to the release from the contract signed with buyer 1, you and seller understood that a release was required from buyer 1 in order for seller to sell the property to you--actually a mutual release.

This is called a condition. A condition is a fact, the occurrence or nonoccurrence of which determines when and if a party must perform. If a condition occurs, it triggers an event. If a condition does not occur, the event is not triggered. So, you both had mutual assent, meaning both seller and you understood and agreed, to whatever terms were included in your contract. Also, included in your contract was an agreement that your contract would not be valid unless buyer 1 released seller from the contract. This is called a condition precedent, meaning that a condition must occur first.

Here, you wrote that seller and buyer 1 signed an extension of their contract, though after the closing date had passed. This means their contract, if valid to begin with, is still in effect and the condition precedent --mutual release--did not occur which would trigger the seller’s duty to sell the property to you, so the seller does not have to perform their contract with you. However, you may still have rights and remedies you can pursue.

Paul, buying a home is stressful enough without having to deal with a problem like this. There are many emotions one goes through, joy, anticipation, fear, etc. If you still want the property, I would advise you to speak with an attorney to see what remedies may be available to you. Some attorneys offer free initial consultations. Also, if you need a Realtor to represent you, I will be happy to guide you through this difficult situation. I have attorney contacts and other real estate related professionals available to assist. Feel free to contact me if you need or want assistance in this matter.

Elvin Carroll 616-250-0723
1 vote
The Skender…, Other Pro, Pittsburgh, PA
Fri Jul 27, 2012
This sounds like a mess with a seller that does not seem to be trustworthy and I suggest you move on as it will be hard to do business with this person. If not, here is my take on the situation with some assumptions being made:

The buyer would legally be able to get out of the first contract without penalty, assuming the contract had a financing contingency (which most do). The only not caveat would be that they must have done everything in their power to actually try and obtain the loan, and were denied. All real estate contracts of "time is of the essence," so if they missed deadlines, they would be in breach and have to give up their hand money and the contract is null and void.

Since this happened, your contract is now in force assuming you have held up your obligations and timelines. They are now legally forced to sell you the property and cannot sell to the previous buyer unless you let them. If they do not, and you still want to property, you can file a "suit for specific performance" which makes them sell to you via a court action. You would need to do this prior to the other buyer moving in to avoid an even bigger disaster.

A few people suggested talking to the other REALTOR or their broker but I think this will be a waste of time. There is really nothing that either of them can do other than advise the seller of the consequences of their actions which I am sure they have already done.
1 vote
Carole Higgi…, Agent, Suttons Bay, MI
Fri Jul 27, 2012
Hi Paul-
If buyer number one did not get the sellers to sign an extension prior to the expiration of their contract they technically would have been out of contract- actually defaulted on their contract-when they failed to close on the contract closing date. At that point you should have been in contract and the primary contract at that point. If this is the case your contract should be binding and depending on what is in your contract you should be bale to hold the sellers to specific performance should they default on your contract (by for example going back under contract with the now defaulted buyers). If you have a buyers agent I would ask them to go to the sellers agent and if there is no resolution there head to the seller's agent's broker. If you are not able to resolve this through any of these means I would either hire an attorney or contact the local board office and ask them to get involved. However; whatever you do, you need to act quickly. I hope this helps!
Best of Luck out there
Carole & Greg
0 votes
I would like to say you are correct. And I have brought it up with the broker. He tells me the most important word here is being"released" from original contract. Although there is no written release, I think that as the contract expires, the buyer is automatically released from the contract. That being said, I think my contract precedes the "late" extention and the seller should be legally bound.

Am I wrong here? Your thoughts???
Flag Fri Jul 27, 2012
Phil Rotondo, Agent, Melbourne, FL
Fri Jul 27, 2012
If you still are interested in the home, you should consult an attorney.
0 votes
Brek Schutten, Agent, Grand Rapids, MI
Thu Jul 26, 2012
The purchase agreement will generally have a section that allows for a 15 day period after the closing date for the buyer's financing to be completed. Before the sellers signed a new contract, they should have signed a mutual release that would release the first buyer's earnest money deposit back to them and effectively end the transaction. Talk to your Realtor about it. If you are not represented or feel like you might be misrepresented, let me know and I'd be happy to take a closer look at the situation. I'm glad to see you're becoming a homeowner!
Web Reference:  http://www.brekschutten.com
0 votes
I am not happy with my realto at this point. (also the sellers agent) I guess I don't understand how an extension of a contract could be signed by the seller after they have already signed an agreement with me. ( I too have already given them an earnest deposit.) I believe my contract precedes that by date.) I'd be happy to share more details with you. However I am not sure if I have been misrepresented or not. But I am not happy at all with how unprofessionally this situation os being handled.
Flag Fri Jul 27, 2012
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