No. 4: ‘Can you get out of a home purchase contract?’by Tim Manni
Number four on our Top 10 most popular articles of 2011 is, “Can you get out of a home purchase contract?”
Publish date: February 01, 2011
Written by: Marcie Geffner
Not buying a house might seem like a straightforward proposition. After all, there’s no law or moral imperative that anyone must purchase a home. However, suppose someone signed a contract, agreeing to buy a property for a certain price subject to certain terms, and then decided to back out. That would be a more complicated issue.
Contingencies offer outs
Prospective homebuyers who want to escape a purchase contract should turn first to the agreement itself. Most states require that real estate contracts be in writing to be enforceable, and most real estate contracts include contingencies, or conditions, that must be met for the deal to close.
Contingencies offer various ways to cancel a contract up until the minute when the contingency is either met or its associated time period expires. Which contingencies are included in a contract depends on state law, local custom and negotiation between the seller and buyer.
Breach of contract
If the contingencies don’t offer an out, another option is to breach the contract. Taking this step is a major decision because it could result in forfeiture of the buyer’s earnest-money deposit or a lawsuit brought by the seller as well as accusations of bad faith and loss of any sums the buyer has spent on an appraisal, title report and home inspection.
Some buyers try to finesse a contingency to create a loophole that doesn’t legitimately exist, so they can break out of a contract without a breach. An example would be pressuring the seller to make unnecessary or excessive repairs in a deliberate effort to kill the deal. This strategy is also an instance of bad faith.
Many real estate contracts contain a liquidated-damages clause, which specifies how much the seller will get if the buyer breaches the contract, according to Joanne Fanizza, an attorney in Farmingdale, N.Y. The sum may be equal to the deposit or down payment, but could also be some other amount.
“If you have an empathetic seller who learns that you’ve fallen on bad times, presumably they would work with you and let you out,” she says. “It’s more of a moral matter if you don’t have a contingency in the contract that allows for that.”
Read more from our ‘top 10 of 2011’ list:
For more, read: