I currently have a contract to buy and sell on a property. The property has been appraised by end buyers bank and title company is ready to close on my buy side. The home owner's mortgage company that was about to foreclose on him (3 months behind on his payment) has now offered him a loan modification program and he wants to accept it. 

What now. I still have 14 days in our original contract.

@PARISH BENOIT

Looks like an attorney visit is in order so he/she can advise you on the strength of your contract language.  No one here has read your contract, so anything offered will be pure speculation.  Seek counsel.

Thank you Guy, seeking council is the first order of business tomorrow. Would you stick to your contract or let it go for the sake of the home owner thinks that is in his best interest ? There is a VERY large profit on the line. There is also and end buyer that I have a contract with, a bank that has paid for an appraisal for end buyer, a title company that has done all the work and ready to close, an attorney that the title company has used services from and another investor who was going to put up a hard money loan. Is this a more legal or moral issue I'm dealing with?

I am not a lawyer, but I'd be surprised if a court would make your seller sell.  I think you could force repayment of any cost incurred.

Let us know what you find out.

@PARISH BENOIT

It would depend greatly on how well your contracts (buy and sale side) were drafted and what liability you have to the end buyer per your contract with him/her. 

Ultimately, if the seller decides he doesn't want to sign sale documents, you won't likely convince him to do so regardless of the consequences...and I doubt any court in Texas would ever find in your favor regardless of the purchase contract. Upon the advice of counsel, I would likely consider the following;

1.  amend the contract to extend the option for 179 days to allow time for the seller to determine IF he can actually be approved for a loan modification, which are few and far between. Of course you end buyer won't be happy and may have grounds for litigation against you if your sale contract didn't contain the proper contingencies. 

2.  file a memorandum option in the public records to hopefully keep another investor from undermining your contract since the seller may have been contacted by another investor who offered him more money or better terms at which time the seller decided to use the "loan mod" to get out of your contract so he can take a better offer. 

3.  if you agree to terminate, I might require the seller to give you a "right of first refusal" to purchase the property in the event his loan modification doesn't pan out.  Then file the first right of refusal to give notice to the world of said ROFR. The problem with this is that a ROFR really shouldn't contain a price so it kind of defeats the purpose to a degree, but it may just keep him coming back to you.  A well versed real estate attorney can draft the ROFR.

Thanks Shawn. I'll report the end result.

Great input Guy. Thank you.

This thread was from August and I apologize for not giving an update to all that responded.

I was able to save this deal by renegotiating with the seller giving him more money at closing. It wasn't the easiest thing to pull off but my initial spread was large enough for me to cut my profit in half and still make just under 9k.

Thanks everyone for your input.