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What happens when Seller can't meet closing date in the contract?

I have a purchase agreement on a house. In interested in opinions on my ability to exit the agreement and purse an offer on a different house.

The agreement is subject to third party approval (short sale). The third party must approve by March 31st. However, I've been given strong signals via the Realtors involved that bank approval is highly unlikely at this point (approval pending for more than 3 months). As a result I've looked at other houses and have found one I like.

The purchase agreement also states that conveyance and closing must be completed by March 31st. With less than one week to go, it doesn't seem possible to meet the closing date even if the third party approved right this second.

I've request in writing for the seller to release me from the contract. The seller (via their agent) has stated they want to hold me to the third party approval date.

Given the March 31st closing date, the lease on my current apartment expires on March 31st and I don't have the ability to extend it. So I'd like to move forward with making an offer on the second house. My Realtor is reluctant to submit an offer on the second house, and I'm concerned other purchase offers will come in on the second house and I'll be left with neither of the two houses that I want.

Is it reasonable for me to pursue an offer on the second house without liability for the purchase contract on the first house (short sale)? Given the seller on the first house can't meet the closing date and isn't working in good faith to release me from the contract, is the seller obligated to compensate me for my higher short term housing cost and significant inconveniences, not to mention lost opportunity on the second house?

Thanks in advance for your responses.

Jon
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March 24 - Cincinnati
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Answers (8)

One other mention to make is the below sections refer to the California Association of Realtor Standard Zip Forms. If you are not purchasing in California, you may want to see if same standards apply when you discuss with your realtor and attorney. 

Best of luck,
Negin
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March 26
Without having reviewed the details of your contract, I would look to see if you can exit the contract in the following manners: 

1. Cancel Agreement Based on Expiration Of Short Sale Addendum Timeframe - If you submitted a Short Sale Offer, check to see if you had a Short Sale Addendum (SSA) included in your offer documents. The standard time in the SSA is 45 days (if no other boxes have been checked). See Section 1 A. This time period is defined as your "Short Sale Contingency Period". Has it been more than 45 days since the Seller signed your offer? 

2. Cancel The Contract Based On Your Contingency Period - You have the ability to exit a contract by not approving the condition of the property per your inspection rights (usually 17 days from contract acceptance) - unless you have removed that contingency in writing. Without a written lender approval, your contingency period probably has not started yet. Check section 2 of the SSA which states that your timeframes for your contingencies shall not begin until receipt of the short sale lender's approval in writing. If you do not have short sale lender approval, you can cancel based on your disapproval of the property. Please also refer to section 14 of your contract, specifically section 14 B. 

3. Liquidated Damages - Section 25 of the RPA refers to the liquidated damages clause. If this section is fully initialed by both parties, then your liability is limited to your earnest money.  Have you deposited your earnest money in escrow? 

All the best,
Negin
 
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March 26
Discuss with your Realtor member, if you do not have a Realtor member, hire an attorney to review your contract. 
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March 25
What about submitting an offer on the other home with a contingency date release from the first house?
 
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March 25
Profile picture for wetdawgs
You can be held to the terms of your legal contract with the seller.  If you want to know if you should be able to walk away, then it may be time to review your contract with your atttorney.     You probably can walk away and forfeit your earnest money, but ask your atttorney for a more precise reading on your contractual obligations.





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March 24

Short sellers tend to be short on funds, so I wouldn't expect any agreement for reimbursement to be fulfilled.

You can always "walk away," but you have a contract that expresses the consequences of doing so. If it's just losing your earnest money, well, so be it. The holder of the EM is obligated to hand it over to the seller (ka-ching). If the seller reserves the right to sue you for damages . . . well, that's not so good, is it?

Your agent may be willing to advise you on the consequences of zitzing out of the deal, otherwise, it's lawyer time.

All the best,

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March 24
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Thanks.  At this point should I be able to walk away from the short sale and pursue a different house?
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March 24
Profile picture for wetdawgs
Short sales can be a real pain.   Both the buyer and seller can suffer for a long time.

Is the seller liable to reimburse you for your short term living expenses, lost opportunity etc?   Only if you had it in your contract and the seller agreed to do so up front. 

As you move forward please be aware that putting deadlines on offers with short sales tends to be a waste of both the buyer's and seller's time.   The lender will work at the pace they chose to work at, not the one you try to impose.  If you have a time deadline, don't look at short sales.

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March 24
 
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