Breach of Contract?

Asked by Pele, Texas Sun May 11, 2008

the potential seller of my house had a financing addendum on the contract. Her addendum expired on Friday and it was until Saturday the seller let us know he was unable to get the financing (which I doubt, I think it was more of a "cold feet" situation).

Would this be considered a breach of contract? What can we do regarding this situation.

Thanks for the advice

Help the community by answering this question:

+ web reference
Web reference:


Alan Wynn, , Irving, TX
Sun May 11, 2008
I am confused by your question. If you are referring to the Third Party Financing Condition Addendum, this is an addendum provided by the Buyer to the Seller...not the other way around. This addendum has two purposes.

First, it is used primarily to describe the mortgage program the Buyer is requesting. If this program is not available to the Buyer, the contract can be terminated by the Buyer with Earnest Money returned.

Second, the amount of time the Buyer has to to have their financing approved based on their financial position only is specified in the very first paragraph. If their lender does not approve them...and the only thing that the lender looks at is their finances...the Buyer MUST notify the Seller prior to this date in order to terminate the contract and receive their Earnest Money back. Failure to notify simply means that the Buyer can no longer use not being able to acquire a mortgage as a reason not to close. Unless there are other conditions that would allow the Buyer to terminate the contract, they must close on the property by the Closing Date. If they fail to do so, then the Buyer would probably be in default and the Seller has recourse as describe in the Default paragraph of the contract.

But pragmatically speaking, getting into a situation like this is as a Seller is not advisable. The problem is that while all of this is going on, the house is off the market and may be missing opportunities for other Buyers. Also, if the Earnest Money is in dispute...both sides have to agree to release it to the other party...the listing is still "under contract".

It sounds like the Buyers agent failed to perform by not notifying the Seller/Sellers agent in a timely manner thus putting both parties at risk. But unless the Earnest Money is substantial, my advice is for the Seller to cut losses, release the Buyer and move on.

Thanks for using Trulia Voices. Please feel free to call or email if I can help further.

Alan Wynn
Like NO ONE Else!
0 votes
Noel G. Herr…, , San Antonio, TX
Sun May 11, 2008
I'm assuming you mean potential "Buyer"??....Many contracts don't specify a time to find financing...A breach would allow you keep the earnest money...
0 votes
Diane Wheatl…, Agent, Upland, CA
Sun May 11, 2008
This may be a "out" loop hole they are exercising to retain their earnest money deposit. If they already made one move to cancel and changed their mind that could be a valid reason to suspect that they could do it again. Now that it is the 11th hour (or actually 13th) to opt out of the purchase they needed to base it on something and the lender approval contingency is sometimes abused in this manner.

Your agent should have (or may did) contact the lender to get a status update on Friday as to the final approval of the loan package so that she/he can go ahead and submit a "Contingency Removal" form to the buyers for signature. Once you have that signed, they have no means to back out without jeopardizing their deposit if not additional damages and/or specific performance. If the buyers will not sign a "contingency removal" form then your agent should submit a "notice to buyer to perform" which puts the buyers on a 24 hour notice that they must either move ahead or cancel immediately. The contingency period in California will continue until the real estate agent submits these documents for signature. If the docs are signed or not it still constitutes constructive notice that you are ending the contingency periods for all time related contingencies.

Sometimes a seller will keep the contingency period open to allow the buyer to have a few extra days to put the loan together because they are just waiting on a final pay stub or something. The lender usually vouches for any delays and lets you know when they expect final approval so that loan documents can be generated. If you receive no information from the buyer's agent, lender, buyer regarding the release of contingencies then you know they do not intend on performing and are wasting your time.

So sorry this happened to you. I've had escrows cancel at the 17th day of a purchase contract because the buyer determined that the dog barked too much next door. And, yes that was a valid reason to cancel and obtain their deposit back. But it hurts the seller because they took the home off the market just for them and lost crucial market time. Watching those time frames and acting upon them just prior to or ontime is a crucial part of the real estate purchase process. Good luck.
0 votes
Karen Shrock…, Agent, Dallas, TX
Sun May 11, 2008
How much more hassle do you want to go through with this buyer? Do you real want to prolong this relationship by pursuing legal action?

I can understand that the situation is disappointing and has been frustrating, but consider just getting the house back on the market and finding a qualified buyer. You probably can hold out for the earnest money, but do you really want to be hard-nosed about the situation over one day's time?
0 votes
Bruce Lynn, Agent, Coppell, TX
Sun May 11, 2008
It is likely breach, but what can you do. Most buyers can't pay cash, so if they don't have cash then how can you force them to buy? You can't force a bank to loan them the money. Terminate and move on. You may be able to keep their earnest money or split it with them. You should keep their option money.
Web Reference:
0 votes
Margaret T.…, Agent, Conroe, TX
Sun May 11, 2008
you asked for our opions, but pleeeease be careful taking legal advise. We are not to give it. Now sit down with your agent and Broker. If they give you advise that cost you money in the long run you have some recorse. With us you have none except for some discipline for giving legal advise.
If you start refusing to release earnest money when you should ( and I am not saying you should just to make sure) it will cost you double or more.
To hold that earnest money speak to your Broker or an Attorney, somone that can real all the documents .
Please remember, we Realtors are like anyone in any profession some with some knowledge some with more, but we are not to practice a profession other than our own and we are not attorneys.
It does sound like you should have your agent get his/her Broker involved. Hopefully it is not one of those Brokers that has a lic. , charges for warm bodies to work but is not active his/her self.

0 votes
Pele, Home Seller, Texas
Sun May 11, 2008
I need to rephrase the question. I had it the other way around. Sorry for the confusion.
I am the seller. The BUYER had the financial addendum on the contract. It expired on Friday and we heard back from the Buyer until Saturday about his financing not being approved (hasn't sent a lender's letter stating this). He had a pre-approval letter when he submitted the offer, though. I need to mention he backed out during his option period and then later wanted to still go through with the buying process. We took him back.
It is my understanding that without a lender's letter this is technically a breach of contract and I could pursue legal action.
Your thoughts/experience on the matter are greatly appreciated!
0 votes
Margaret T.…, Agent, Conroe, TX
Sun May 11, 2008
I think you are cutting corners a little close here.
They need a letter saying they were turned down or could not obtain the financing. If they told the underwriter to have an answer to them by Fri. Knowing mortgage companies it did not come in to the last min. We rhat have been in real estate a while have a rule NEVER do anything with a mortgage company with a Fri deadline. If a mediator or court got involved they would most likely say rule that Sat was before the next work day.
Otherwise this is a legal question, we are getting a lot of them but as Realtors we are not to answer legal questions.

I am confused do you have the buyer and seller reversed in this question. Why would the seller need to get the financing.
0 votes
Dallas Texas, Agent, Dallas, TN
Sun May 11, 2008
I am a Dallas real estate agent, and a Dallas home mortgage loan officer. It can be true regarding lending it all has changed just recently, unless the buyer has 5% to 20% put down there is not more 100% financing loans. You need to do further investigation on it. However it depends on how the contract is authored whether the buyer receives the escrow money returned. In most instances if the buyer can't qualify then the earnest money is returned, however it is the title company who enforces the purchase contract between the buyer and seller.

QUESTION: was the seller purchasing another home? I am confused sounds that way in this situation?
Web Reference:
0 votes
Chris Tesch, Agent, College Station, TX
Sun May 11, 2008
Dear Buyer,
You probably have grounds to sue for specific performance, however you won't get anywhere if they can't buy the house. You should be able to keep their earnest money at a minimum since your house was off the market for a time. What does your agent say? I'm relatively sure that your agent would have requested a preapproval for them and now the lender should be called to ensure that this isn't the case. At the very least they should be submitting a letter from the lender stating that they no longer qualify for the loan.
Web Reference:
0 votes
Search Advice
Ask our community a question

Email me when…

Learn more