China, ME · Member since 2014 · 3k+ posts · 4k+ votes
6y
@Eli Gilbert Well, that's a different story. If you truly had no inspection contingency and you want to back out because of an inspection issue, you should expect to lose your deposit.
At this point, you have to decide whether the repair issue is so expensive that losing your deposit is a better decision for you. You also need to read the contract again to be sure that loss of deposit is the full remedy in the event of buyer default. Depending on how it's written, you could also end up getting sued for specific performance (a court order forcing you to fulfill your contractual obligations). Your reputation is going to take a hit too.
The important takeaway for the future is to be sure you have proper representation.
If I were your Realtor, I'd strongly caution you against writing an offer without both inspection and financing contingencies. There are times you can waive home inspection - I just did it on our new home in Maine. It's a fairly new home and was in immaculate condition, plus I went through it with a fine tooth comb. But that was a risk that I was willing to accept as we were up against another offer.
However, unless you have actual cash in the bank, waiving the financing contingency is just plain reckless. Let's say something unexpected happens, like losing your job. The lender decides that he's no longer going to do the deal - and now you're stuck. At the very least, your deposit is at risk.
DIY is OK if you really know what you're doing, you don't necessarily need a Realtor, but until you've put in your 10,000 hours, DIY real estate is playing with fire.
China, ME · Member since 2014 · 3k+ posts · 4k+ votes
6y
@Eli Gilbert Read your contract. That normally specifies the terms of performance and will often set the penalties for non-performance.
At this point, you should request that the seller signs an extension of time for closing. Find out from your HML when they expect to have funds wired to you. Add 1 day for a safety margin and use that date for closing.
In general, if you have a valid contract that all parties have signed and there are no contingencies, you cannot just walk away. Most contracts I've seen state that in the event of buyer default, all deposits are due to the seller. The contract will probably also state that deposits cannot be distributed unless both parties sign off, so in practicality, the deposit ends up getting split.
If you're represented by an attorney or title company, they should be handling this for you. If not, I'd get an attorney on board and have them sort this out.
@Eli Gilbert Call your lender and tell them when closing is and that they told you it wouldn't be a problem. You need the money. I've only dealt with banks and in those cases, I never see the money, it all goes through the notary or lawyer who is handling the closing.
Investor · Cleveland, OH · Member since 2019 · 103 posts · 22 votes
6y
@Charlie MacPherson
Sorry I wasn’t clear, the money is not the isssue, the lender will deposit the money if I ask him to, I’m having cold feet because I didn’t realize the extent of an issue that could ruin the deal!
China, ME · Member since 2014 · 3k+ posts · 4k+ votes
6y
@Eli Gilbert Well, that's a different story. If you truly had no inspection contingency and you want to back out because of an inspection issue, you should expect to lose your deposit.
At this point, you have to decide whether the repair issue is so expensive that losing your deposit is a better decision for you. You also need to read the contract again to be sure that loss of deposit is the full remedy in the event of buyer default. Depending on how it's written, you could also end up getting sued for specific performance (a court order forcing you to fulfill your contractual obligations). Your reputation is going to take a hit too.
The important takeaway for the future is to be sure you have proper representation.
If I were your Realtor, I'd strongly caution you against writing an offer without both inspection and financing contingencies. There are times you can waive home inspection - I just did it on our new home in Maine. It's a fairly new home and was in immaculate condition, plus I went through it with a fine tooth comb. But that was a risk that I was willing to accept as we were up against another offer.
However, unless you have actual cash in the bank, waiving the financing contingency is just plain reckless. Let's say something unexpected happens, like losing your job. The lender decides that he's no longer going to do the deal - and now you're stuck. At the very least, your deposit is at risk.
DIY is OK if you really know what you're doing, you don't necessarily need a Realtor, but until you've put in your 10,000 hours, DIY real estate is playing with fire.
Investor · Cleveland, OH · Member since 2019 · 103 posts · 22 votes
6y
@Charlie MacPherson
Thank you for your advice,
Ye my biggest mistake was doing deal without contingency, especially when I saw that there was a potential problem, it could be a $20k fix to waterproof basement, the deposit is only $1k so from that point of view, definitely worth it..... the question is tho, can I back out, I’ve signed everything, just the title hasn’t been recorded yet?
The money is not the issue, I am having cold feet about a potential high ticket issue that can ruin deal
I only saw you mention being concerned about the money not coming from the lender. Was this potential problem detected during the inspection and due diligence period? If so and you are still within that time period, get out of the deal that way. If you are past that, then get someone in to confirm if it is a problem and then either try to renegotiate or break the contract. You may lose your deposit, but better that than being stuck with a money pit.
Investor · Cleveland, OH · Member since 2019 · 103 posts · 22 votes
6y
@Theresa Harris
There was no contingency for inspection so they don’t let me into the house, so I can’t get an inspector in, however I showed an inspector a video I took of basement, and said that likely to be very costly, but he didn’t actually see it in person.........
I’m in the stage of having signed closing papers, but money hasn’t wired and title hasn’t been recorded, can I still back out, I’m willing to lose deposit?
Rental Property Investor · San Diego · Member since 2019 · 109 posts · 87 votes
6y
Hi @Eli Gilbert. With the limited info from your post, I assume you did HML on the property you got under contract because you agreed to pay all cash, fast close and no contingencies? This is a pretty risky way for a newbie to get involved in REI. Typically, these kind of transactions are done by people who know the ropes really well. I'm sorry to hear you've gotten in this mess, but chalk it up as an expensive lesson and move on.
With that said, @Charlie MacPherson is right though that you could get sued and this will tarnish your reputation a bit. Both are recoverable if you remember that REI is a long-term game and that most deals that are too good to be true, usually are...
Lender · Lakewood, NJ · Member since 2019 · 247 posts · 101 votes
6y
Presuming no legal issues (ask a lawyer!) Losing $1K vs needing to find $20K that you don't have... sounds pretty clear.
On the other hand, if this property is in OH, remember that this state is currently not over-serviced with HMLs and that your current HML will likely remember you backing out at the last moment after all the work they put into the deal.
As an aside, this is the exact type of reason some HMLs, including ourselves, take an upfront fee. For when the borrower gets cold feet at the very last moment.
What were your plans when you bought the home? Assuming the house can be lived in and the repairs need to be done, but not done immediately, you can save up and pay for the repairs in a year.
Specialist · Delran, NJ · Member since 2016 · 2k+ posts · 951 votes
6y
Plan A would be to back out and lose your deposit. Does the money you would need to fix the issue make the deal non-profitable or is it just more than you want to deal with? Were you planning to eventually refi and buy and hold? Take a breath and consider options. Is it possible there's a scenario by which someone in your network could pick up the deal in something of a wholesale deal and you can do better than completely backing out and having nothing to do with it?
Investor · Cleveland, OH · Member since 2019 · 103 posts · 22 votes
6y
Thank you for all your responses, I backed in the end!!
On to the next one, with inspection contingencies!!!!!
It was to be a flip, with a potential $30k profit, the main issue was that i did not have funds for rehab if it was gonna have this $20k fix, as the HML who is a friend set up the loan in a way that he would not fund the rehab, only the PP and he did not want a second lien on the house, thereby not allowing me to get another loan for the rehab.....................
Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
6y
Don’t be in the flipping business if your broke . Geez your going to hurt everybody involved by running business like this . Lenders don’t like this , nobody does !
Rental Property Investor · Concord, GA · Member since 2015 · 3k+ posts · 3k+ votes
6y
I guess this is already a non done deal but I would not have based the cost of a repair on a guess by someone that had never even been to the property. Maybe a couple gallons of water blocking paint would have sufficed, or longer downspout extensions. You need to make your decisions on better data in the future.
Investor · Cleveland, OH · Member since 2019 · 103 posts · 22 votes
6y
@Dennis M.
Thanks Dennis, I agree, I now have a better system (for someone with no cash)
I have the original HML, who was a friend for down payment and when things go wrong, and I found a HML who doesn't require the down payment to be my own cash!
What are your thoughts?
I specifically didn’t want to get into rentals until I have capital for reserves, so wanted to flip a few to gain capital......
Investor · Cleveland, OH · Member since 2019 · 103 posts · 22 votes
6y
@John Teachout
I agree, just the risk of him being correct was too much for me!
There was a heaved floor in basement, with obvious signs of water damage and water under the floor, the only question was how it got there and how extensive of a water proofing would be necessary!
Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes
6y
Seller can probably require specific performance if I understand all of the facts (you have signed the contract and only title has not recorded). It sounds like you bought a house. You will be liable for the difference between your contract price and the price at which the property sells.