Backing out of deal last minute

Buying & Selling Real Estate
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Backing out of deal last minute

Account Closed
Member since 2022 · 1 post · 0 votes

Looking for advice:

Got into contract for my first investment property for an LTR about a month and a half ago. My lender approved me for a secondary home rather than investment property (I didn’t know the difference at the time) which eventually snowballed on me—requiring extra documents, changing contracts, etc. Things got complicated with the loan, we tried to smooth it out with the realtor and underwriter but at the end of the day, it wasn’t enough and I didn’t feel comfortable moving forward.

Long story short, we are submitting a cancellation and mutual release agreement due to inability to obtain the loan. We already pushed back closing once and were days away from our new date. Since this is a breach in contract, I am concerned for a lawsuit.

Have any of you ever been in a situation like this before or walked away from a deal so late in the game? Any advice for steps moving forward? It’s been an incredibly stressful process and any wisdom would be much appreciated! :)

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  • Michael Dumler
    Real Estate Agent · Atlanta, GA · Member since 2020 · 1k+ posts · 1k+ votes
    4y

    @Account Closed if you've breached the contract and have no set forth contingencies to cover your back, then the seller will receive your earnest money deposit. To be honest, this all should have been avoided from the start. I somewhat blame your real estate agent for not recognizing this, but at the end of the day you're held accountable. The only advice I can really give is to seek guidance from a lawyer. Sorry this happened. 

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  • Jacob Maes
    Real Estate Agent · Dallas, TX · Member since 2020 · 92 posts · 46 votes
    4y

    Hey Sarah,

        People backing out of contracts last minute isn't super uncommon as similar situations happen. I would say that the seller could pursue legal actions for specific performance but a lot of times they will just keep your earnest money and move on. I can't say what the seller will do but from what I've seen, they just keep the earnest and find a new buyer.   

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  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    4y

    @Account Closed your realtor should negotiate the cancellation. It may involve the seller keeping earnest money. If you did an inspection, you can offer to provide them a copy as a term of the cancellation. The seller can use the inspection to either make repairs or they can provide it to future perspective buyers as a pre-inspection. It has value, so you can use it in the negotiation. This is a bummer for the seller, but in a fast moving real estate market, their actual damages are minimal. Anyone can sue you for anything, but what they can win is another matter. Don't sign contract release or earnest money release until you negotiate mutual terms. It is your main bargaining chip.

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  • Marcus Auerbach
    Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
    4y

    You are NOT in breach of contract if your financing fell trough as outlined in the financing contingency in your offer! Your lender will issue a letter that financing is unavailable and your agent will send that along with a Notice and the CAMR. Your get your EM back per the contract.

    And even if you were in breach of contract, they need you to sign the CAMR, so worst case you surrender the EM (or try half of it) and then sign off on it. Nobody is going to get sued, because they can't sell it to anyone else without the CAMR. And once you both signed it you are good - it's called "cancellation and mutual release" for a reason.

    On a human note: It is painful for a seller if a deal falls apart so late in the game. May not be the worst idea to realy an apologee.

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