A Nightmare Closing Saga – Part I

by | BiggerPockets.com

Last year, I bought a house, rehabbed it and finally sold it. When I got a contract to sell it, the experience I endured was simply gut-wrenching. I got “sand-bagged” just about every way possible until I fought back… And WON! Here is what happened…

nightmare by perplaix

This house was the first house deal I had done since 2003.

The reason I had not done any deals since then was because I began my teaching career and started my mentoring program soon after that. During a class I was teaching in May of 2006, two students arrogantly challenged me by saying, “Are you one of those people who tell others how to do it but never have the stones to do it yourself?”

I took it rather calmly but, I was on fire on the inside. I made two phone calls to wholesalers and was informed about the house. I looked at it the next day and made a phone call to the hard money lender that afternoon. I closed three days later. I set out to prove I practice what I preach and figured it would be a great thing to involve students in.

I got a call from a Realtor around 7PM last November and they wanted to show my house that night. I met her and the buyers at the house and they loved it. I offered to pay $5,000 towards closing costs and they agreed to a sales price of $253,000.

The Realtor told me I would have to wait until Monday (this was on a Saturday) to get the contract and earnest money because the buyers currently had a contract on another house to secure their interest rate. She told me they wanted my house and would cancel the other contract Monday morning. She then said that they wanted to close in one week. My response was, “No problem.”

On Monday, she called back and told me they would not be able to offer a contract because the buyer’s lender informed them that they would lose the interest rate if they pursued my house. I told her to call the lender back and inform them that the buyer’s would get funding elsewhere and the lender would buckle under and give them the same rate rather than lose the loan. She refused. I then offered to increase my contribution by $1,000, for $6,000 total. She refused.
I didn’t have a contract. I had nothing.

The following week the same Realtor called back. She asked if I would still accept the same terms. I agreed and she sent the contract over to Mark, my Realtor. From the start, I had been factoring the title policy cost being included in the $6,000 I was going to contribute to the closing costs.

Mark sent the contract over to me and we briefly went over a few points that I should contest, etc. The Realtor had checked the box which said the seller was to pay for the title policy. She had also added in the Provisions section that the seller was to pay $6,000 for closing costs. I saw nothing out of order so I signed it and sent it back to Mark. MISTAKE! That was one of the big mistakes I made. I should have written in specifically that the title policy expense was to be included in the $6,000. Instead, I ended up paying $1,700 for the title policy PLUS $6,000 for closing costs. I went nuts when it was pointed out that title policy costs are not considered part of closing costs. I went on to ask several title companies, escrow agents & real estate attorney’s what they thought. It was split. Half said it should have been included and half said they were separate.

When I went to the buyers agent to get it right (in my opinion), she countered by saying that it was not part of the agreement and she would “cancel the contract” if I pushed the issue. I asked my Realtor (Mark) if she could do that. He told me that she represented the buyer but it appeared that she took that to mean that she had Power of Attorney for the buyers. She refused to bring my concern to the buyers. I wanted to cancel the contract as it was still in the Option period but I had not had any other offers in three months so I backed off and in a way, allowed the Realtor to bully me on the issue. In other words, I would be coming out of pocket $7,700 now.

A few days later, the buyers had the inspection and the appraisal done. The buyers agent handed me a complete copy of the inspection report and said there were several items that needed to be fixed. I called Mark and told him the inspection was complete and she had given me a copy of the report. Mark told me the agent should soon submit a list of repairs the buyers want done and we would go over them together before sending them back to the buyers agent. In other words, the inspection would reveal flaws in the house and the buyers then request which ones they would like me to fix in order for them to proceed to buy the house. In Texas, this is the Option Period.

Once the Option time passes, the contract is set and if the buyers back out after the option expires, then they lose their Earnest Money ($2,000).

The repair list never came. I called Mark and asked if they ever sent it. He confirmed that it had not been sent. Three days later, the Realtor came by to give me the Option check (which she should have given me the day the contract was offered) and asked me “How are the repairs coming along?” I was stunned. It quickly dawned on me that the Realtor actually thought that the inspection report she gave me was also the list of repairs the buyers wanted me to fix. When she did not get the report back from me, she assumed I had agreed to repair everything the report had listed. I said to the Realtor, “What repairs?” She got very annoyed and told me I didn’t respond to the report and I have to make the repairs. I replied, “The option period is over and you didn’t send us the list.” She then raised her voice and said, “The deal is off. I am canceling the deal.” As she got in her car, I said, “Okay but the buyers will lose their earnest money.” She shook her head and said, “Oh, no they won’t.” She drove off.

I quickly called Mark and he was beside himself. Since I am not a real estate agent, I depended on him to tell me what the buyers’ agent could and could not do. He told me that she could not threaten to cancel the contract without consulting with the buyer first. I had a problem now. The buyers Realtor didn’t know the rules and had messed up by not getting the requested list of repairs to me during the option period and to make it worse, was now threatening to cancel the contract if I didn’t agree to make any repairs. People that know me personally all know that I go out of my way to “C Y A” or in other words, “Cover Your Asset.” I went into CYA mode.

Later that night, the Buyers Agent called me but I let it go to Voice Mail. I was rewarded when she left a message and in it she said, “You need to make those repairs because if you don’t, I am going to cancel this whole deal.” I later found out that she left the same message on Marks voice mail. Since I was in CYA mode, I got out my computer and recorded the voice mail message and made it into a .wav file on my hard drive.
That’s when the fun started. Actually, that is when the stress started for me.

I had called TREC (Texas Real Estate Commission) and confirmed that the buyers’ agent did not have the authority to cancel a contract without the buyers’ consent.

I took my laptop to the buyers’ agents’ office and I asked to speak to the Broker. For the novice, the Broker (in this case it was Keller-Williams) is the top dog. They owned the Keller-Williams office and the buyers’ Realtor worked under the Broker.
The person who came in was not the Broker but they confirmed they were the highest ranking manager in that office. I sat with her and said, “I am sorry to come to you like this but I need this house to close on time and I am not confident that it will happen because your Agent is being a Cowboy.” I then played the recording of the voice mail. The office manager’s eyes began to widen and she shook her head. She said under her breathe, “Oh no… she didn’t.” The message ended and she said to me, “Mr. Watkins, I am sorry that this has happened. You have my word that I will get involved in this transaction and see to it that it closes without any further incident.”

I thanked her and left. I wish there had been no other incidents after that but, plenty followed.

The next day the buyers’ agent called me and had lost her attitude. She apologized for the confusion and said she had made a mistake. She then asked me if I was willing to move forward with the sale. I asked if I was going to be required to make the repairs and she said that it was her mistake and informed the buyers that she had messed up and the buyers still wanted to buy the house. I agreed and since I had met the buyers and had liked them the first night they looked at the house, I offered to make several repairs as an act of good faith. I figured the buyers had not made the mistake so I would not penalize them for their Realtor’s mistake. They were all grateful.

The Realtor then said her “Boss” was with her and was I willing to talk to him? I said “Sure” and her boss got on the phone. He identified himself as the Broker (I later found out from another agent in that office that he was a minority owner of that office).
He asked me, “What is your intention at this point?” My reply was, “I want to get this deal done but I was not willing to allow his agent to walk all over me because she didn’t know the rules.”

He then asked if I could come by his office to talk face to face. I said I would be there in 20 minutes.

When I arrived at his office, I saw the buyers’ agent was there as well. The three of us sat down and we made small talk. Let me stop for a second and talk about one of the biggest problems that exist in real estate (in my opinion)… EGO’S! That’s right… EGO’S! That Broker (I’ll call him Donald) was the most egotistical person I had met in real estate. He snapped his fingers all around, flailed his arms as he spoke, gave me details of his record of success he had enjoyed while he lived in Maryland and he kept going and going. I concluded that he loved hearing himself talk. Looking back on it, I think if he had not gotten involved in the deal, it would have closed without incident.

He asked me what my concerns were. I was blunt and told him I was not happy with how the Realtor was trying to bully me and I was not happy with having to spend an additional $1,700 for the title policy. Further, I had reviewed the HUD-1 and was disgusted at how the title company had padded their fees. He was surprised and asked me to show him what I meant.

I put the HUD-1 from when I bought the house in June down and then put the preliminary HUD-1 from the current sale next to it and told him to look for himself. To let the readers know what I was showing him… I had closed six months earlier with LandAmerica Title. It was being closed by LandAmerica as well but it was not the same branch.

The fees were very different when compared side by side. In fact, they were well over $1,000 higher and I wanted to know why. Donald, stood up and said, “That was in June. We are in a different County now and it has been six months. I can assure you that they are not padding the numbers.”

I asked, “Do you work for Land America Title? How can you tell me this as a fact?” He went on to tell me more of his great resume and never answered the questions. I looked at the buyers’ agent and told her I wanted to change title companies and she said, “The buyers won’t agree to that.”
I got mad and said, “Listen Dorothy, you represent the buyers, you do not have Power of Attorney for them. You HAVE to bring them my request.” She shook her head and the Broker told her I was right but said, “I am going to recommend to them that we stay with the same title company.”
I wanted to switch title companies so I could have someone in my corner who wouldn’t pad numbers.

That is when the Broker and I butted heads. The Broker then said to me, “Look Jim, it’s only a few hundred dollars. In the big picture, it’s really not a big deal. My advise to you is to let it go and let’s get this thing closed so we can all move on.” I sat up and fired back… “Donald, do you have a hundred dollars on you now?” He nodded his head, yes. I continued, “I want you to take it out of your pocket, place it on the table in front of you and go get a cup of coffee. When you come back, it will be gone! And guess what? You will be pissed!” He looked at me with a blank look.

I went on to say, “It is legalized theft. Period! You can’t give me an answer to why the figures are higher and you are defending the title company. It is legalized theft and it’s not right!”

He just shook his head. I then said, “Wait a minute… You are the Broker who is representing the buyers, correct?” He said he was. I said, “Surely as the Broker who represents the buyers, you are NOT GIVING ME, THE SELLER, advice… Are you?” His eyes widened, his mouth opened but nothing came out. I stood up, gathered my things and walked towards the door. I stopped at the door and turned around. I said, “Both of you have made mistakes that should not have been made. The effects of those mistakes will hurt both me and the buyers in the end. I have signed the contract and I will honor my end, even though I made a mistake on the closing costs. I expect both of you to honor your end and I expect this deal to close as planned. The only issue at hand now is where it will close. I will expect to hear back by tomorrow, what the buyers said about changing title companies. Oh, and Dorothy, I want the buyers answer to be in writing with their signatures. I want verification that you asked them as you were directed.” I turned and walked out.

I am bringing Part 1 to a close at this point but I wanted to make sure people understand what I was facing at this point.

I was being watched by a lot of students and there were several local “guru’s” watching over this transaction as well. I felt I was being bullied and I had wanted to withdraw the contract and place the house back on the market. I didn’t think the buyers would pursue the matter and sue me (as that would have been their right). However, if I had done that, I would have breached the contract. As an instructor in real estate, I knew that breaking the agreement would not have been an ethical thing to do. In other words, I had made mistakes thus far but I was not going to breach the contract and set what I felt would have been the worst example of my career, to my students and peers. I decided to move forward and I would take responsibility for the mistakes I had made and I was going to honor the contract.

Remember CYA? I read the contract over and over and over at that point. I was going to find a way for me to recoup some of the money that I was going to lose and I was going to do it legally.

The answer was in the contract.

Please look for Part II of this article as I will explain exactly how I stood up for myself against the Realtor, Broker, Title Company and the Buyers’ Lender…. And WON!

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  1. Steven Boorstein on

    Interesting article. Lots of mistakes being made…

    Your article glaringly point out a couple of issues that I see…

    1. Real estate agents often do not know what they are doing. The bull market from 1998 to 2005 infused a lot of new agents into the market. Many of them “part timers”. This and other factors, including the fact that in my state, for example, they do not have to have any continuing education and they are not considered fudiciaries but “salespeople” in the eyes of the law… has created an environment where it is a career that is easy to obtain a license in, has not ongoing educational requirements and has salespeople that can put themselves ahead of clients. Not a good combination at all. That’s not to say that a good agent isn’t useful. I think that there are agents out there whom I think add plenty of value to the transaction… but you have to be careful of the others.

    2. In my state of NJ, for example, I understand it that most all of the costs associate with the Title/Settlement company are fixed. So, it is really service that becomes the major issue. I don’t know if it is the same in your state. I think I would have either approached the title company directly or gone to your original title company and ran the numbers by them to verify your suspicion that the numbers were “padded.”

    3. I realize that you had a lot of people watching you on this transaction and as a mentor there was a lot riding on this outcome. So far, I think you handled it well, although a little confrontational. (Although I can’t really disagree, because I honestly don’t think I would have acted much differently.) But for guys like you and me… killing with kindness might be better than calling them “bullies”, and inciting Brokers, saying the title company is trying to cheat you, etc. The last couple of deals I have negotiated I have been tried to get the opposing side on MY side by telling them how I “really appreciate all their help” and try to explain how I know it’s not them but the process… the sellers… whoever. But this is how I need it to go, or it just ain’t gonna happen. I try and explain that I don’t negotiate and this is a fair deal for all parties… take it or leave it. (All the while, I really am negotiating, but I have brought the conversation to a different level under my control).

    I look forward to your conclusion and how you turn THEIR WRONGS into YOUR RIGHT. Deals like this that go awry are not uncommon and I think that the lessons you learned can help investors make sure their deals go off better.

    Steven Boorstein
    Landlord Business Insider

  2. Very few people can stand up for themselves. Kudos to you. I just want to know where your real estate agent was in all of this? Shouldn’t he/she have been taking care of all this. In Michigan the agent is the one to speak on your behalf.

    The part that involved the agent saying she would cancel the contract was a similar problem I had recently on a deal. It was a foreclosed home, and the offer accompanied a 22 page addendum from the bank that superceeded any contract that we would have written. Because of the length of the contract who better to speak to than the listing agent to make sure everything is filled out properly. We spent over 30 minutes making sure it was right. I then had to wait 2 weeks to find out that it was not, and she then calls me telling me that if this is not filled out right, and my clients don’t start doing what they are told she was going to cancel the deal and put the house back on the market. What a nightmare. I knew she couldn’t do it, but we didn’t have a bottom line from the bank yet. Do I get pissy with her and ultimately lose the deal for my clients? Fat chance, so I had to go old school with the way that I talked to her. All levels of arrogance had to be put aside. I went Dale Carnegie on her, and eventually she calmed down and realized that it was a minor mistake, so we corrected it and finally closed a short while after.

    Great post, and hopefully part II isn’t as bad.

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