Advice needed: pending deal - inspection & contingency problems
Flipper/Rehabber · Lakeland, FL · Member since 2019 · 131 posts · 91 votes
I’m a licensed agent in Florida. I’m an investor and I really only do my own deals. This is the first one of my properties that I have sold as an agent.
Here’s the issue - got a contract from a buyer that is a commercial agent representing himself. There was a 7 day contingency on him having an offer on this existing home & if he couldn’t produce a purchase contract on him home that he would either remove the contingency or the property would go back on the market. It was worded as an addendum to the purchase contract.
Here’s the wrinkle - as-is contract but there were some items that came back on inspection. The buyer stated that he wanted some items repairs and a reduction in the selling price. That was this morning (7 days after the contract is signed).
I responded as to what I would agree to and that he needed to produce a purchase contract on his contingency property or remove the contingency. That was was 10 hours ago and he hasn’t responded.
What would you do? Do we actually still have a contract?
@Stephanie Simmons as others have told you, send the required notices and then inform the buyer that he is in breach of the contract. If you accept the EMD, that's a settlement of the claims, otherwise you lien the EMD as part of your litigation to enforce the sale (even though his contingencies failed to occur). You've had a lot of great advice in this thread, so I won't belabor the point. Good luck.
Send a Notice to perform. In California they have 2 or 3 days to perform. The Notice to Perform language is usually in a paragraph within the purchase agreement.
@Stephanie Simmons I think it depends on the wording of that contingency you mention on the other property contract since it sounds like that was a one off type thing.
As far as inspection, financing, appraisal, and other 'standard' contingencies go on the FARBAR As-Is contract, saying or doing nothing IS a response in itself, and inaction results in moving forward with the contract as if there was no issue. The inspection contingency period is the buyer's ability to exit, but it doesn't mean they have to. Once contingencies pass, EMD 'goes hard' and becomes nonrefundable. For sake of being ethical, I'd stand by your offer of what you'll do to correct their issues assuming you made that offer by email, but you might not legally have to (I'm not an attorney, so double check that....I always try to keep my word even if not bound by law to do so). However, if they come back and wish to cancel after inspection period is over and release EMD to buyer, tell them to pound sand and refer to the contract and the calendar.
I recently dealt with a buyers agent who just did not understand the binding nature of the contract terms, despite my best efforts to explain it including the specific line and item numbers from the contract. He and his buyers didn't raise issue with inspection, appraisal, or financing despite me repeatedly asking and encouraging communication, yet closing date came and passed while they failed to close. We canceled with his buyers and went with a backup offer, closed in 19 days contract to close, my seller keeping the previous buyer's EMD as liquidated damages. The previous buyer's agent got pissed and tried to insinuate that my seller was a bad person for doing so, but it is quite literally right in the contract what happens if a buyer defaults. We even made offers of extending closing with additional EMD which we got no response to. I've learned that just because someone holds a Real Estate License, it does not mean they fully understand contracts.
I recommend calling the FL Realtors Legal Hotline for any specific legal questions...they were a huge help in navigating the dealings with this incompetent agent I had the pleasure of working with. BP won't let me post the number here, but google "Florida Realtors Legal Hotline" and you'll find the number. It's a free service for all Florida Realtors and connects you directly to an attorney you can ask anything to. If your extra addendum is worded oddly, it may be best to run it by them to see their thoughts.
If your issue were just with the inspection, them not saying anything and letting the inspection contingency lapse means they can no longer exit based on inspection period. There may be financing or appraisal contingencies left for additional exits, but inspection is over and done with. However, depending on the wording of the 'extra' contingency on the other property contract there may be issue there. If it specifically states that no action results in the ending of the contract on your property, it could in fact be the end. I'd run it by your broker and/or the legal helpline to be sure. If it is worded that way, I'd avoid accepting something similar in the future. It's always best to let the buyer's agent bear the burden of action to exit a contract rather than it defaulting to an exit. I always try to encourage communication with buyers agents in advance of contingencies ending, but sometimes they simply fail to respond in a timely manner and the benefit of keeping EMD for buyer default should rest on the seller in those cases.
@Stephanie Simmons Hi Stephanie. What I am understanding is that you have an Addendum on your contract that states that your buyer has 7 days to get a Purchase Agreement on his home or your contract with him is "Null and Void". If the time has expired and he has not produced a Purchase Agreement on his property or he has not agreed to remove the contingency; you do not have a contract.
If you are using the Florida As-Is contract, you are not obligated to make any concessions. "As-Is" means that your buyers only options are to either take it or leave it. If you wanted to allow for contingencies you should have used a different contract.
If you are an active agent in Florida, then you should be working under a Broker. You can bring this to your Broker's attention and have him/her help you with this.
Best of luck!
@Russell Holmes
Buyer shall provide an executed contract on buyer's property under the by
1/27/2020 at 7pm otherwise this purchase contract is invalid and the
property will be available to other buyers.
Buyer will release seller of
any responsibility to execute this contract if an executed contract is
not presented to seller. Buyer will have the option to amend this
contract to remove the property sale contingency prior to 1/27/2020.
My broker requires that he sign releasing the contract.
I am thinking I am going to send him the paperwork to cancel the contract even though I don’t think we actually have a contract.
@Stephanie Simmons that does sound like the contract is over. In the future, I'd suggest telling those kinds of buyers to simply wait and submit the offer when ready. He's basically wasted your time off market without any real gain to you or him. In the transaction I mentioned where the buyers missed closing, our backup offer was at first contingent on sale. My seller liked the numbers and terms, but realized if he canceled with the current buyers and took the contingent on sale offer, a failed closing for that buyer could mean he killed both potential buyers chances. Instead, we gave the current buyers more time 'in limbo' and told the backup to close and come back to the table. Her closing was 10 day out and pretty solid. In those 10 days, the defaulted buyers made no progress but were still under contract since nobody had canceled. When the backup buyer closed, she re-submitted the offer without a contingent on sale clause. We canceled on the defaulted buyers and accepted the backup a few minutes later. The property went from pending to active to pending in a matter of 5 minutes, but it was the legally correct way to do things while protecting the interests of my seller.
In my previous experience with unresponsive agents, I checked, double checked, and triple checked with my broker and the state legal hotline on this point to be sure I wasn't misstating anything when things got ugly (this is my experience, I'm not an attorney so please verify):
You may cancel a contract unilaterally (at least in Florida), meaning you can sign a cancellation and release, send it to the buyer, and put the property back on the market or accept another offer after sending the cancellation out. Either party can cancel by sending a cancellation and release without the other party signing. Of course your broker might have more strict rules you must follow, but legally speaking cancelling does not require both parties to sign. Cancelling is a separate issue from release of EMD.
The actual release of EMD is another story from whether or not it goes back on market. Even in the event of buyer default by missing closing, the As-Is contract only says "the seller MAY keep EMD as liquidated damages" it doesn't say 'must' or 'will' or anything legally black and white. Seller could decide they want to sue or arbitrate for damages beyond EMD, and taking the EMD as liquidated damages ends all further litigation for more. I had buyers who very clearly missed closing, failed to communicate, and defaulted on the contract, yet we still needed their signature on the cancellation and release for EMD to go to my seller.
If you talked to an attorney, there's likely some legal gray area or legal precedent somewhere if you really wanted to be a pain, so releasing of EMD always has to have full acknowledgment by all parties before it gets wired anywhere. Title companies will not release EMD without agreement by both parties on what happens. This saves them from future litigation and it prevents you from suing to perform later.
So even if you send him a cancellation and release stating the EMD goes to buyer and put the property back on the market, title won't Release EMD to him unless he also signs the Cancellation and Release. You also typically cannot close with a new buyer while there's an active 'dispute' over EMD...although I've heard it is technically possible if you start fresh with a new title company, keeping the disputed escrow at the first...a huge pain since you'll likely owe that first title company for any preliminary title and lien work done. My seller had to threaten aggressive legal action against the non-responsive buyers stating he could sue them for far more than their EMD before they finally signed the release to let him have it and close with the final buyers. In your case, you seem to agree your buyer is due the EMD since that states the contract becomes invalid and it's more a question of whether you can list it active again, so I can't see him having an issue signing the cancellation and release soon. Even if he's delayed on signing the cancellation and release, you should still be in the clear to put it back on the market. I went through this twice on one listing, and both times I was in the clear to put the listing back to active status before having full agreement on cancellation and release. But I OK'd it with my broker and the legal hotline first just to be sure.
He might refuse to sign the release if he plans to put in another offer with the same EMD, but in that case the EMD would simply sit in limbo at the title office while you can still work with any other offers. It would be a jerk move on the buyer's part to leave the EMD dispute active, but it could potentially happen. Still shouldn't hold the property off market in that case but could become an issue as you approach closing. Arbitration costs money on both sides and is very rarely worthwhile when the duties of both sides are pretty clear based on contract.
Thank you for the thorough response!
@Stephanie Simmons as others have told you, send the required notices and then inform the buyer that he is in breach of the contract. If you accept the EMD, that's a settlement of the claims, otherwise you lien the EMD as part of your litigation to enforce the sale (even though his contingencies failed to occur). You've had a lot of great advice in this thread, so I won't belabor the point. Good luck.
@Stephanie Simmons You're welcome!
It's been a couple of days, were you able to get any response from the buyer?
@Russell Holmes
I sent him a cancellation of contract and yes he did respond. Fingers crossed on a closing in a couple of weeks.