what are my options when buyer backs out last minute?

immovingJune 17, 2012

We were to close on my house on May 31. We declined another offer to accept this offer since they came with a pre-approval letter from their mortgage lender and made no contingencies on their offer. Some repair requests were made after the inspection. While I had the repairs done, I was told by my agent that I should make arrangements to move since I would have to turn over the keys once the closing happened. Once the repairs were done I was told that the only thing that the lender needed to approve the loan was the report from the appraiser that the repairs were appropriately done. I voiced my concern to my agent regarding the tight timeline (since it was already the 25th and we were to close on the 31st) and was told that I would have to move out on the 31st even if everything was finalized 2 or even 1 day before the 31st. I sold everything (since i was downsizing from a 3 bedroom house to a one bedroom condo) and moved out on the 27th. The appraiser came to re-inspect the home on the 28th. Then, the buyers asked for a contract extension to be signed since the appraiser hadn't turned in his paperwork on time. So I did. Then, I was told that the buyers had to change their loan type from a VA loan to conventional and asked me to sign another extension. I signed the extension. Then the next day, my agent called to tell me that the buyer's loan was not approved because they had included child support as part of their income and it was not a consistent income - NOT because of anything having to do with the appraisal. The buyers signed a rescission forfeiting the earnest money of $3000. My agent says "sorry" and when requested to get copies of the lender's loan denial, she says she's not sure if she can because they forfeited their earnest money. Now, I sold EVERYTHING I own to downsize and already moved out on the advise of the agent. She led me to believe, unfortunately all on phone calls and only a few e-mails, that the lender had "assured" her that the loan was good to go as soon as the appraiser turns in his paperwork. I think it strange that the buyers were so easy on forfeiting their earnest money, especially if it was the loan that was not approved. I have a suspicion that they probably found another place that they liked better and wanted to back out of the deal. What rights do I have? At this point, I want to sue my agent for her incompetence and the buyers for screwing up my house sale and financial situation - no furniture left to decorate the home, declining another offer, having to pay more mortgage until house actually sells, and having another lease that I signed that I cannot get out of. Am I entitled to get a copy of the loan denial and the reason? Can I get the appraiser's report? What documents am I legally allowed to obtain?

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Mick Mick

I think the only thing you are entitled to is earnest money. That sucks.

    Bookmark   June 17, 2012 at 10:37PM
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$3K in earnest money is very low and makes it easy for the buyer to walk away if they found something better. What was the price of the house?

    Bookmark   June 18, 2012 at 3:20AM
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The questions you are asking are legal questions. Your rights will depend on the provisions of your contract and your rights under your state's law. You should be putting these questions to an attorney licensed in your state.

    Bookmark   June 18, 2012 at 4:19AM
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How can it be your agent's fault that the buyer's loan was rejected? Read your contract... it will tell you exactly what your choices are.
If you are a regular reader of this forum, you will know that deals fall apart because of financing all the time. I would be surprised if you are legally due anything more than the deposit.

    Bookmark   June 18, 2012 at 7:20AM
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Very sorry to hear about what happened. Unfortunately there's nothing you can do. You're actually lucky you got to keep the deposit. Normally, (at least in my area) if a buyer cannot obtain financing, that is not looked at as being their fault, and they get their deposit returned.

This sounds like the loan officer failed in doing their job (big surprise), but there's nothing you can do about it. It could also be possible the buyers found another house they liked better, and they just say they were denied. Again, nothing you can do about it. Even if you can get hold of the loan documentation and can prove that they could have bought your house, you still can't force them to buy it. When it comes to buying & selling houses, very rarely is it worth the effort taking them to court and trying to recoup your losses. You are better off just forgetting about it.

You learned a big lesson the hard way - when it comes to selling a house - "it aint over til its over".

On the "bright side" - you are now in your new place, and you have gotten rid of all the stuff you would have had to anyway. I happen to think selling an empty house is easier. The agents/buyers/inspectors can show up almost anytime and not have to inconvenience you. A lot of buyers will like knowing they can buy the place and move right in. I think the only downside to selling an empty house is some buyers will assume it is a distress sale, and they will try to take advantage of you - but don't let them.

Good luck

    Bookmark   June 18, 2012 at 9:48AM
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You already did what you are allowed to do - keep the earnest money. That is the agreed upon penalty for the buyers backing out of the deal. If you don't think that is a big enough penalty, you shouldn't have agreed to that offer.

    Bookmark   June 18, 2012 at 1:25PM
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sorry to say...
yes, once you sign the agreement to accept the earnest money, it's over;
you've agreed that the earnest money is your compensation.

I do sometimes wonder, when the buyer changes the loan contingency very late in the process, gets the seller to sign the change, & then immediately "can't get financing"*, if he actually just decided to back out & changed to a loan he knew he couldn't get.

(VA loans are generally easier to obtain than conventional ones.)

I'm sorry;
I wish you the best.

    Bookmark   June 18, 2012 at 1:33PM
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The lesson that you've (hopefully) learned from this is that a high earnest money deposit provides much more motivation for the buyers to go through with the process. If one bank turns them down, rather than throw their hands up and "oh well", they will be highly motivated to keep seeking out financing possibilities.

    Bookmark   June 18, 2012 at 2:02PM
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I see a lot of people saying that the deposit should have been larger. To me, $3000 is pretty high. In my area, they don't create high deposits with the intent of "locking in" a buyer - they only make it high enough to reimburse the seller for the misc. inspections that take place prior to closing.

My house was in the mid 200's and the deposit was only $1500. I actually told my realtor I wanted a $5000 deposit, and she told me that would scare off too many people, and could result in getting no offers at all.

I suspect these people purposely screwed up their loan in order to get out of it. If they had truly been denied the loan, and felt it was no fault of their own, they would have wanted that deposit back.

    Bookmark   June 18, 2012 at 2:42PM
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Not sure why you think they "purposely screwed up their loan in order to get out of it." Why would they make up fake loan stuff to get out of your deal? They didn't need to provide you with any reason at all as long as they were surrendering the earnest money.

    Bookmark   June 18, 2012 at 3:10PM
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An awful lot of people here are giving what amounts to legal advice and telling the original poster what her rights are or are not. However, none of us have seen her contract or even know what state laws apply to her situation. The original poster should not be relying on legal opinions from the posters on this board which is based upon very minimal information. I suggest that the original poster consult with her/his attorney.

    Bookmark   June 18, 2012 at 3:17PM
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"The buyers signed a rescission forfeiting the earnest money of $3000."

You are probbaly lucky that you got that.

I have never signed an RE contract involving a mortgage that did not have a financing contingency that called out the ability to obtain a mortgage of 'at least %X dollars at a rate of no more than y% per annum or the whole contract is void.'

There is also normally an appraisal contingency also (the house will appraise for the offer price).

Contracts do vary from state to state, and a few states even require you to use a state issued contract, the 'liquidated damages' are also normally called out in the contract.

Read it, and if you still have questions ask an RE attorney in your state.

    Bookmark   June 18, 2012 at 3:47PM
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"They didn't need to provide you with any reason at all as long as they were surrendering the earnest money."

not necessarily true;
seller might have sued for specific performance(& messed up buyer's opportunity to buy the house he found after his option period expired).

    Bookmark   June 18, 2012 at 3:58PM
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What to do?
Have a good cry!
Then put it back on the market.
Not much else to do.
It happened to us too.

    Bookmark   June 18, 2012 at 8:43PM
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Bill wrote:
"Not sure why you think they "purposely screwed up their loan in order to get out of it." Why would they make up fake loan stuff to get out of your deal? They didn't need to provide you with any reason at all as long as they were surrendering the earnest money."


Kats Meow... I stayed at a Red Roof Inn last night...

    Bookmark   June 18, 2012 at 9:01PM
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"Why would they make up fake loan stuff to get out of your deal?"

Because people get buyers remorse or they find a house they like better for a lower price - and they would rather blame it on a loan not being approved than to be honest about it. Blaming it on the loan is the easiest way out.

Them giving up their deposit w/o a fight showed they were feeling responsible for what happened. It was cheaper to let the seller keep the $3k than to risk getting sued for all the other expenses. Had their loan been denied, and they felt it was not their fault "because the loan officer never told me I couldn't claim child support" - don't you think they would have fought harder to keep that money? And if they can't qualify for the loan, that tells me $3k is A LOT of money to them - money they can not put down on the next house - why would they so easily let that go?

Obviously the seller also thinks there was something fishy about this - otherwise they would not be interested in seeing the loan documentation.

I had a similar situation happen to me when I was selling my house. The buyer was the son of a very prominant business owner, who was also a partner in the family business. They had a "preapproval letter" (which I now realize is worthless). After they already had a contract on the house, they wanted about $12k worth of furniture, but was only willing to pay $5k for it. We were negotiating the furniture price only 24 hrs before I had scheduled movers to come pick it up and deliver it to my other house. I told them if we can't agree on the price before the movers take it, YOU will pay to have it moved back to the house should you change your mind. We couldn't agree on a furniture price, but this was not part of the house sale, so I assumed they were still going forward. Only 4 days later I was informed they couldn't get their loan, the deal was off, and I had to refund their deposit. I figured they were mad because they couldn't get the furniture, and just for spite they decided to go elsewhere. Either that, or they just found a cheaper house. I found it really hard to believe they failed in obtaining a loan.

    Bookmark   June 18, 2012 at 10:29PM
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I'm a bit surprised no one has mentioned that having a suit or pending suit involving the property would scare the beejeebus out of any other potential buyer.
Having your home involved in a lawsuit while selling? Really, I'd run for the hills.

Here is a link that might be useful: Les Pendens

    Bookmark   June 18, 2012 at 10:59PM
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deborah_ps, you are so right! A sensible prospective buyer would run for the hills and fast.

I do feel sorry about what happened. I would hate if it happened to me when I sold. Keeping the earnest money is the full compensation for this unfortunate turn of events.

Agree with the other posters that it's time to take a deep breath and move on and find a new buyer.

    Bookmark   June 19, 2012 at 8:27AM
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It happened to us, as well. After we spent $4k in requested repairs our buyers backed out because they changed their minds (no financing, it was a cash deal). We only kept the measly $1500, and even that was after much hassle and threatening letters from our real estate attorney.

My hope? That Karma catches up with them and they think back someday to, "oh yeah, I guess this is sorta like when we just changed our minds on that house ... But this seems so much WORSE now that someone is doing it to US."

The people who finally did buy it jerked around with their loan for so long (changed lenders, finally went VA) that they lost the FTBH credit in the end. I was so glad to be rid of that house that months later DH and I would look at each other and say, "Wow, doesn't it feel great that the house is gone?". Ours was a corporate relo so when we made the first deal we had to arrange moving dates with the relo company, wound up leaving the house vacant for months while the second buyer changed their financing around (and our agent said their agent said they did that because they found a bank with lower rates at the eleventh hour).

Deep breath - and remember that the universe will handle it :)

    Bookmark   June 20, 2012 at 7:13AM
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EngineerChic: Interesting there are so many people changing financing in the middle of the process. Our realtor warned us NOT to change financing companies after the contract was signed because that put up alarm bells in the seller's mind. We could shop around all we wanted -- until we had an accepted offer. Then we needed to stay put.

    Bookmark   June 20, 2012 at 1:30PM
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Sometimes a mortgage broker will woo buyers away with promises of lower interest or lower fees or lower payments;
by the time closing rolls around, all these benefits vanish, & the buyer has to close or not close with the interest, fees, & payments (s)he would have had anyway.

    Bookmark   June 20, 2012 at 2:12PM
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If this happened to us, we'd have to break the new lease at the risk of getting sued over that because we couldn't afford both rent or mortgage. Typical earnest money here would not cover the kinds of expenses like the op is incurring. There is something wrong with the system when it seems like sellers are taking this much risk to sell their homes. I've sold 2 homes where the buyers financing got screwed up the day before closing. On one, we had sold our fridge because it didn't fit in the new house, turned on utilities at the new house and off at the current one, has our mail forwarded, etc. It was commonplace to be moved out the day of closing. It was the day before Thanksgiving that was supposed to be closing day and it wasn't until Monday after the holiday that they pretty much told us it was a dead deal. The lenders are at fault and someone needs to be held accountable.

The second time was an out of state move. We had to pay movers to pack us and move us. They were going to be paid with the proceeds of the sale once we got to the destination. Our house sale fell through because our buyers house sale fell through the day before closing again. Every single item we owned was on a moving truck headed across country at the cost of $7000. We didn't even have the money to pay the movers unless the deal finalized. I actually went to the buyer's buyer's lender and gave them hell about what they had caused. Magically, the papers went through but this was after 2 weeks of living with family out of our suitcases while our belongings were held hostage across the country.

I feel for you OP, I'm scared to death of any possible nightmares happening again this go around.

    Bookmark   June 25, 2012 at 2:18AM
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I know it's been a couple of years since this happened, but how did it all turn out for you? We are in the same situation right now, in California. Five days before closing, all contingencies were removed, and the buyer decided to back out.

Hope it worked out for you.

    Bookmark   November 8, 2014 at 1:15AM
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If all contingencies were removed, there should be a penalty involved.

    Bookmark   November 8, 2014 at 8:47AM
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