Breach of contract? Is there anything we can do?

Asked by Harv8798, 87540 Wed Oct 7, 2009

We received an offer to purchase our home. It says buyer being able to obtain a FHA first mortgage loan. We seen the pre-qualification letter from ABC bank. We find out later the buyer went for a USDA loan through XYZ bank. Buyer was denied. We had a rate locked in for our new house. Now we have to cancel or extend and they both will cost us.

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Steve Rizika’s answer
Steve Rizika, Agent, Santa Fe, NM
Mon May 21, 2012
I think you have received several reasonable answers to your question. The real answer will lie in the specifics of your purchase contract. Without that information it is impossible for us to give advice which will most likely involve contacting a real estate attorney since Realtors do not practice law.

Rather that speak to the what if's of a legal battle, there is a practical side to all of this. A legal battle or a battle over earnest money as liquidated damages, is an expensive undertaking. Just because you win, does not mean you will pay dearly for that victory. There is no way of knowing that a judge would grant you legal fees as part of your "victory." Also the buyer may not really have any assets to lose. Then you would have a judgement not worth the paper its printed on.

I would suggest that the best way to deal with this unfortunate situation would be to see if you can get this willing buyer to purchase your home. I understand your frustration and the real costs of doing this, but I think the alternatives are much less attractive and more expensive.

One of the big lessons learned is that in NM a deal is not really closed until you receive your check. Does that make future plans very difficult to make? Yes it does. The financing landscape is a treacherous one these days and it takes experience and finese to really understand it.

We never like to hear about these situations, and hope that in two weeks the buyer's loan will come through and at least stop your financial bleeding.
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Spence Ralst…, Agent, Santa Fe, NM
Thu Oct 8, 2009
Like I believe most Realtors would have done, I would have made a Pre-Approval letter a requirement either before accepting the offer or within 3 days of acceptance of the offer. There is a difference between a buyer being pre-qualified and pre-approved and your Realtor (assuming you used one) should have explained the difference to you. If the buyer is now telling you that there is a bank that will lend him/her the money ask to see a pre-approval letter from that bank. Without one the buyer is just blowing smoke.

I feel very bad for you. If you didn't use a Realtor then this is an example of why you should have. You should go to an attorney for advice; I doubt there's much you can do but I am not an attorney, so this is just my opinion. If you did use a Realtor then talk with him/her and/or the firm's Qualifying Broker to understand what your options are and to get advice.
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Harv8798, Home Seller, 87540
Thu Oct 8, 2009
I'll try to explain further. We excepted the offer. We were to close on Sept. 30th. Utilities, internet, insurance was shut-off & moved to our new house. We started packing & moving. XYZ bank didn't set up the appraisal until 2 days before the closing. Closing got pushed back until Friday. The buyer was denied the USDA loan. He then went for the FHA loan and was denied that. Even though we were showed a pre-qualification letter showing he was good for a FHA loan. Now we are living in a empty house with no insurance on it. We are also paying insurance for a house we can't live in. We had to pay $400 to extend our rate lock. Now there is another bank saying it will give him the loan but, not for another two weeks. So, now we have to move a bunch of our stuff back to our house so we can live. We have to pay insurance on two homes. We think he should have went for the FHA loan first because that was in the OTP. It is a big mess.
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Keith Sorem, Agent, Glendale, CA
Wed Oct 7, 2009
This is not legal advice. For legal advice see an attorney.

In most cases purchase contracts are written to favor the buyers. The buyers normally have a set time period to secure financing (called the contingency period), inspect the property, etc.

If the buyers did not remove the loan contingency, it is doubtful that you could prove damages....that you turned down another offer because you were dealing with them.

If a Realtor was handling your transaction, my assumption is that the MLS status of the listing was BackUp Offers, or Contingent taking back ups, so the property was still being actively marketed until the buyers remove all contingencies.

I would focus more on talking with your Realtor.
1. Review the offer paperwork and see where they were in the process when they canceled
2. Discuss you problem with your Realtor. You can even show them this post. As a listing agent it is possible, in the final counter before acceptance, to REQUIRE that the buyers Co apply with a lender known to either you or your Realtor. It is does not obligate them to use the lender, but it gives you some control over the process.
3. Depending upon your market conditions, you can also impose a per diem fee for every day late that they transaction closes (once contingencies have been removed).

I would also review all properties with whom you are competing since putting your home on the market and see how many have either lowered prices or sold.
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Spence Ralst…, Agent, Santa Fe, NM
Wed Oct 7, 2009
I assume you accepted the offer and went to contract? Was the loan the only condition, or were there others (like appraisal or inspection results) that the buyers could use to get out of the contract? Did you work with a Realtor? If so, s/he can negotiate with the buyers' Realtor to get all or part of the earnest money given to you. Assuming the contract and earnest money went to a title company, in order to terminate the contract a termination agreement that spells out the disposition of the earnest money must be signed by BOTH the buyers and the sellers. If you do not sign, then the title company holds on to the earnest money until there's an agreement, or until there's a litigated settlement. Thus you've got some bargaining power.
If you were doing this on your own, without a legal contract and without a title company or attorney holding the earnest money, then I'm afraid you may be out of luck unless you can have a friendly conversation with the buyers and have them agree to give you something. Good luck with that!!!
0 votes
Elizabeth He…, Agent, Agawam, MA
Wed Oct 7, 2009
Contact a lawyer to see what the specific laws of your state are regarding breach of contract.
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