Seller backed out at closing!

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Seller backed out at closing!

Rachel Degennaro
Rental Property Investor · Las Vegas, NV · Member since 2018 · 21 posts · 27 votes

I was in the process of buying what I was led to believe (by seller and listing agent) was a triplex, the top 2 units were rented and the bottom one was vacant, so I was going to live in bottom and continue renting the top 2. Seller accepted my offer and I went through the inspection, mortgage, appraisal, EVERYTHING

(found out during the appraisal that the 3rd floor kitchen was never permitted so it could only be a 2 unit) so they had to remove the kitchen and tenant (tenant had not paid rent for past 2 months so he was trying to pawn her off on me, found that out during this as well)

I had asked multiple times (When I put the offer in, during the inspection, a few weeks later and again last week for proof of rents paid and security deposit, estoppel, ECT and was told repeatedly they'd give me that info asap and never got anything except a poorly filled out estopple)

and on the DAY OF CLOSING (today) we are all waiting on seller and his agent and after they were 15 mins late, we call the sellers agent and ask how much longer til they arrive and he says they're not coming the seller doesn't want to sell. 

I've already moved out of my rental and was staying with a friend for a few days til closing and now that's not happening. I am so upset, I've saved for years to do something like this, and now he just backs out because he didn't line up a place for himself to go and said he didn't know he had a second mortgage and wasn't going to be making as much money as he thought he would.

I am going to sue him for damages, has anyone else ever gone through something like This? I can't believe this is happening.

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Frank Gucciardo
Highland, NY · Member since 2013 · 169 posts · 130 votes
8y
Originally posted by @Account Closed:

So other than your feeling got hurt can you list your damages.

After  paying your Lawyers to force a sale you might be even more HURT.

Are you talking about a Million dollar west coast triplex or a idaho $45,000 plex.     Price matterS

 So, you just let people back out of contracts on you on a regular basis? Great way to do business. 

Bad answer 0/10.  

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  • Tom GimerBusiness Member
    DMV · Member since 2017 · 3k+ posts · 3k+ votes
    8y
    Originally posted by @Jon Holdman:

    It is very common in real estate contracts that the only remedy for the buyer if the seller does not close is "liquidated damages".  That is, you get your earnest money back.  While it is frustrating to have spent money on inspections and other up-front costs, there's rarely any provision for the seller to refund those costs if the deal does not close.  Further, standard contracts usually have a place where "specific performance" could be chosen as the penalty.  But that's not usually selected.  Get out your contract and have a look.  If it states liquidated damages and you get your security deposit back you don't have much leverage to get other costs paid by the seller.  Frustrating, but the reality of buying real estate.  Look at your contract.

    What you are describing is a default provision which states that the return of the deposit is the buyer's sole remedy. While that is a fairly common provision, especially for buyers who are not aware of how one-sided it is, that is not a liquidated damages provision. 

    A liquidated damages provision would be on top of the return of the deposit... an amount agreed to in advance because actual damages would be difficult to estimate.

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  • Michael J.
    Rental Property Investor · Louisville, KY · Member since 2008 · 342 posts · 123 votes
    8y
    It might be different where you live but I would never even consider paying a up front fee to a REA as a buyer, or seller for that matter. To me it sounds shady, maybe it’s different in your state or city but I would contact the Keller Williams HQ and ask if that sounds right, they don’t want offices doing shady things in their name.
    1Reply
  • Nathan Broekhuizen
    Holland, MI · Member since 2016 · 34 posts · 13 votes
    8y
    Rachel Degennaro Dave Toelkes it could quite possibly be an administration fee.. our brokerage has a $295 administration fee. However, this is paid at close and so is all commissions.
    0Reply
  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    8y

    @Tom Gimer I hear you.  But a standard contract filled out by a realtor is likely to have nothing beyond the return of earnest money as the liquidated damages.

    0Reply
  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    8y

    I didn't read all of this.

    Next time in a contract have a contingency in the purchase and sale that ALL of the items listed have to be received for due diligence period to start.

    This way you generally know right away if the seller is hiding stuff. If they know you will not spend one dime until you see the good, the bad, the ugly from them then they will work to get you everything if they really want to sell to start the clock. If not then it is very telling they are looking for a sucker.

    They are looking for someone to give them stuff piece meal and drop the really bad stuff they are hiding at the end when the buyer has spent lot's of money and time trying to make a deal work. The buyers often feel trapped and must decide to take losses and walk away or still close on the property. It's dirty pool played by sleazy sellers.

    This can be especially bad for 1031 exchange buyers where the seller pulls them along and the 1031 buyer is past their ID period and now is looking at huge tax penalties if they do not buy.

    Did you show up to closing on the closing date and document? Generally even if seller says they will not close the buyer shows up (willing and ready) to close on the contract date given. If the buyer and seller do not show up the seller can claim the buyer was not ready to close and did not attend the closing.

    The reality is the seller saying they did not know they had a second mortgage is baffling. They would have had to sign something for that when they got it. You could talk to an attorney but likely they tell you this would get very expensive and you just get a judgment that is worthless and waste big time and even more money chasing bad. If the seller is living there in one of the units I have not heard of a judge throwing them out to force  a sale.

    For your next property see if you can buy a 4 unit instead of a 3 unit. You get better break even occupancy for the mortgage. Example one vacant unit in a 3 unit is 33.3% vacancy but in a 4 unit it is 25%. Check with your inspector if they can give you  a price break on the next property to inspect because of what happened. See if your lender will shave some costs for you as well on the next property since you took losses on this one.

    No legal advice given.  

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  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    8y
    Originally posted by @Michael J.:

    It might be different where you live but I would never even consider paying a up front fee to a REA as a buyer, or seller for that matter. To me it sounds shady, maybe it’s different in your state or city but I would contact the Keller Williams HQ and ask if that sounds right, they don’t want offices doing shady things in their name.

     It is not shady, and it is actually something the Department of Justice wants to see....that being many different types of ways agents charge for their services.  The DoJ encourages the industry to come up with all kinds of pricing models. They dont want to see everyone charging the same amount and being paid in the same format.

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  • Otis Sanders
    Investor · West Palm Beach, FL · Member since 2017 · 94 posts · 32 votes
    8y
    You may be able to sue under specific performance. I had the same thing happen recently. Once the seller received the papers from my attorney they decided to proceed with the sale about a month later. The fees for my attorney were also deducted from the seller’s payout at closing.
    1Reply
  • Roy N.Pro Member
    Rental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes
    8y
    Originally posted by @Tom Gimer:

    ...

    Estoppel certificates are promises made by the tenant to the prospective buyer conerning the status and terms of the lease, deposit, etc. Based on OP's facts this deal should not have gotten this far.

    Estoppels are not promises, they are attestations - that is why they are signed and witnessed.  

    The word estoppel itself comes from the French word estopail (a 'bung').  In modern common law it is a device used to prevent, or "estop", a person from making assertions or from going back on his/her word.   When you are performing your diligence, you would create an estoppel for each tenant or service provider based upon the leases, contracts, and other information provided by the Vendor and then have the tenant review it and either agree (swear) it is correct, or amend the estoppel and sign/swear the amended estoppel.   This is how you discover things like "Unit 1's rent is $800/mth, but the Vendor is only collecting $600 because the tenant vacuums the stairwells and shovels the walkways.

    When the Vendors story and the tenant's story to not align then "Luuucccy ... you got some 'splaining to do"

    3Reply
  • Rachel Degennaro
    OP
    Rental Property Investor · Las Vegas, NV · Member since 2018 · 21 posts · 27 votes
    8y
    Originally posted by @Gregory H.:

    @Rachel Degennaro I am with Keller Williams, and I can tell you that me/my office doesn't see a cent until the closing table. More likely it is that specific broker within KW, probably not the direct agent with whom you worked (but I can't be sure). Either way, their explantation that they have costs .... that is why they get 30% of an agent's commission without doing any of the selling directly.

     I am putting a link to the page that Keller Williams sent me, I had to pay it before they would put an offer in for me.

    I uploaded it to imgur: 

    http://i.imgur.com/k1sZj2A.jpg

    0Reply
  • Gregory H.
    Real Estate Agent · Philadelphia, PA · Member since 2013 · 451 posts · 369 votes
    8y

    @Rachel Degennaro Never seen the document before in my life. What you have to understand is that Keller Williams offices are essentially franchises, so the individual owner of an office can choose to charge whatever fees they would like. I can tell you I just closed a deal a few weeks ago, and the buyer was not charged a nickel, my/my office's sole compensation was the commission offered by the seller. I would say a lot of offices do charge some sort of admin fee, but its usually only if the deal closes, they get the admin fee at closing, they don't charge it up front. Also understand, just about every fee you encounter can be negotiated.

    0Reply
  • Roy N.Pro Member
    Rental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes
    8y
    Originally posted by @Rachel Degennaro:
    Originally posted by @Gregory H.:

    @Rachel Degennaro I am with Keller Williams, and I can tell you that me/my office doesn't see a cent until the closing table. More likely it is that specific broker within KW, probably not the direct agent with whom you worked (but I can't be sure). Either way, their explantation that they have costs .... that is why they get 30% of an agent's commission without doing any of the selling directly.

     I am putting a link to the page that Keller Williams sent me, I had to pay it before they would put an offer in for me.

    I uploaded it to imgur: 

    http://i.imgur.com/k1sZj2A.jpg

    Rachel:

    The only times I pay my buyers agent a fee is if I send him out to make an unsolicited offer on a property (since there is no listing agent) or if I ask him to do something where I know he's not being compensated by a commission (except for bringing coffee ... he just knows better than to show-up without one ;-) ).

    0Reply
  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    8y
    We can help/advise you better if you tell us what your contract says. If specific performance is an option in the contract, sometimes an attorney letter threatening that action will get them to the table, if they think you are serious. Some require arbitration as a first step, if so, initiate that.
    1Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    8y
    Originally posted by @Rachel Degennaro:

    Yes, it's all in the contract, he is at fault, it just most of the people I have contacted about this normally go through this because the buyer backs out not the seller, so I was more or less wondering if anyone has gone through the horrible experience of the seller backing out.

    I am planning to sue for damages, and maybe it doesn't amount to much but it makes me sick that after everything I went through to get this place he just doesn't show up to closing and I'm out all the money and time I've spent on it and out a place to live and nothing happens unless I sue him?  

    I never show up for closings... at least when the buyer is there.. that is an antiquated cluster waiting to happen.. I have them e mail me docs then I fed ex them back or I go in at time the buyer will not be there.

    I have successfully done a performance suit one time in Oregon... 2 plus years close to 20k in legal fees and AND this is the big and since I was paying cash 120k  I had to put that money in escrow the WHOLE amount and leave it there for 2 plus years as we litigated it.

    I won... but ONLY because the seller was a no show at court.. and judge had no choice to rule for me..

    End of the day this is what SMALL claims court was invented for..  your damages though real to you are hard to determine monetarily.. Myself I had given the seller 40k in cash release to her as EM and she would not give it back or sign the closing docs I had no choice

    you on the other hand or out probably less on the monetary side and more on the emotion side...

    I once had a land owner who went into contract with me to sell me their timber.... and timber is real property so this is germane.. he backed out.. I took him to small claims and judge gave me the 7500 judgment right on the spot.. seller was quite mad walked over with his check book and threw me a 7500 dollar check....

    so that's the route I would take hopefully you have a nice size small claims .

    Also I bet dollars to donuts your real estate contract if you used a state form will make mediation mandatory before you can sue anyway. 

    that's whats happened to me in PA when buyers backed out last day and wanted their EM back.. I would not give it.. they would not sign so mediation was done and of course we end up splitting the baby down the middle.

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  • John Peine
    Rogers, AR · Member since 2017 · 49 posts · 18 votes
    8y

    That was my first thought @Tom Gimer.  It smelled bad the whole time.  Dew diligence was turning up yellow sighs.  I feel like she fell in love, its hard not to do, especially early on. If you have rose colored glasses on those yellow warning signs look like roses.

    Hopefully she can bounce back soon.

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    8y
    Originally posted by @Gregory H.:

    @Rachel Degennaro Never seen the document before in my life. What you have to understand is that Keller Williams offices are essentially franchises, so the individual owner of an office can choose to charge whatever fees they would like. I can tell you I just closed a deal a few weeks ago, and the buyer was not charged a nickel, my/my office's sole compensation was the commission offered by the seller. I would say a lot of offices do charge some sort of admin fee, but its usually only if the deal closes, they get the admin fee at closing, they don't charge it up front. Also understand, just about every fee you encounter can be negotiated.

    I just bought a place in Vegas and the agency tried to hit me with a buyer paid admin fee.. I told them to remove it.. end of that story. 

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    8y

    @Account Closed   I may be the only one thinking this  @Russell Brazil @Tom Gimer @Ann Bellamy

    However watching your posts on this thread and others your not really that funny.. and your no help.

    Most folks with experience and not beginners   that I know are quite the opposite polite respectful and pretty darn smart.

    Not sure what you think your going to gain by your not so funny condescending posts.. @Mindy Jensen  

    and maybe its just me...  but if would be nice if you would retool how you interact with folks on this site and if you 

    have some unique experiences that you could help people, I am sure that would be appreciated..

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  • Jeremy S.
    Flipper/Rehabber · Mechanicsburg, PA · Member since 2013 · 189 posts · 84 votes
    8y
    Congrats to you for saving money and having the courage to make your first deal but this is a perfect example of buying a property just for the sake of buying a property! You are probably better off anyway as this has huge red flags all over it! Some shady business going on here
    2Reply
  • Charlie Price
    Rental Property Investor · Niceville, FL · Member since 2017 · 88 posts · 136 votes
    8y
    What Jay said. :-).
    0Reply
  • Elizabeth Wilson
    Real Estate Investor · Memphis, TN · Member since 2016 · 940 posts · 695 votes
    8y

    @Rachel Degennaro - I don't have any advice.  Just wanted to say that sucks.  I'm so very sorry that he put you in this position.  My only hope is that when you get your next (even more amazing) deal, you can start a forum post that says "I'm so happy that POS seller backed out"!  :)

    2Reply
  • Luiz Souza
    Real Estate Investor · Gainesville, GA · Member since 2009 · 241 posts · 34 votes
    8y
    Record the PA and cloud title. Sooner or later he’ll try to sale the property again and when he does title won’t be good than he’ll have no choice but to contact you for the release and when he does charge him a nice little fee for your headache!
    3Reply
  • Rachel Degennaro
    OP
    Rental Property Investor · Las Vegas, NV · Member since 2018 · 21 posts · 27 votes
    8y
    Originally posted by @Luiz Souza:

    Record the PA and cloud title. Sooner or later he’ll try to sale the property again and when he does title won’t be good than he’ll have no choice but to contact you for the release and when he does charge him a nice little fee for your headache!

     Thank is for this advice! I had never heard of it, (an obvious newbie here) I am looking into it now. It's just crazy to me someone can put you through the motions and not show up at closing (I did my final walkthrough the night before and he said he'd see me tomorrow) I just want some form of justice, however small it is, this is just so wrong.

    2Reply
  • Luiz Souza
    Real Estate Investor · Gainesville, GA · Member since 2009 · 241 posts · 34 votes
    8y
    BTW. That’s what I would’ve done if this situation was with me and here in my neck of the woods. Seek legal advise as laws change from state to state and the above is nothing more than my opinion. Good luck!
    2Reply
  • Calvin Lipscomb
    Brooklyn, NY · Member since 2016 · 316 posts · 130 votes
    8y
    Originally posted by @Rachel Degennaro:
    Originally posted by @Account Closed:

    So other than your feeling got hurt can you list your damages.

    After  paying your Lawyers to force a sale you might be even more HURT.

    Are you talking about a Million dollar west coast triplex or a idaho $45,000 plex.     Price matterS

    I don't want to force a sale at this point I don't trust the seller, after misleading me about the number of permitted units, (I was disappointed but still willing to buy because it was still a good deal to me although it did need some work, which it was happy to do, I was looking for a project.)

    Also, never receiving the papers I asked for, which in this kind of a sale I don't feel like I was asking for anything out of the ordinary. 

    Also, he lied about 3rd floor tenant, said he had taken care of it but was trying to sneak her around the appraiser, eventually he did remove her and it was fine.

    I should have ran but I didn't because I was trying to make my first investment go through, and as weird as he was I just thought as soon as this sale is over I don't have to deal with his crap anymore and can fix the place UP and enjoy it.

    So money wise it's not a million dollar property, but it was to me, I don't make a lot of money and have lived way below my means for years, kept debt to a zero and saved and suffered for years to be able to put a proper downpayment on something like this.

    But I did pay for an inspection, paid my realitor fees, my bank fees, got an appraisal, title search, put notice on the place I was renting and moved out, all my belongings are in storage and now I have no place to live.

    I have to start all over, when I should be enjoying my new house. So yes, my ****ing feelings are hurt.

    I applaud your determination in trying to secure your first deal in the face of those red flags.  A number of experience investor will tell you that your first deal is the hardest and you can analyze forever without pulling the trigger.  Next, in my view, you did engage in further due diligence by analyzing the deal with these misrepresentations with the numbers still working.  I just want to encourage you to make something happen even if you just break even.  The key to your problem will be the contract.  Look at what your contract actually say if either party fails to perform.

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  • Jason Pinkerton
    Rental Property Investor · Tampa, FL · Member since 2017 · 45 posts · 40 votes
    8y

    Rachel,

    You could consider yourself very lucky! You may be thinking WTF!? But despite this being a big blow to you emotionally, the seller pulling out at the last minute could have been saving you from a world of heartache in the future. If it was meant to happen, it would have happened (by belief anyways). I have had contractors, wholesalers, realtors and many others "screw me over" and my initial reaction was of complete anger and revenge. But, for what I could have gotten in damages just to stick it to them (maybe a few grand at best) would definitely not been worth my time, effort and sanity. I had to let it go and chalk it up to a lesson learned --I made mistakes too, missed red flags, etc. You said you "should" have seen the red flags. Well, tomorrow or when you cool down some, grab a pen and paper and write down all the mistakes you made and red flags you missed. At the top, write "NEVER AGAIN" and place it in your office/work area. If it's painful that's good, because you won't make those mistakes again because when you see that red flag and think "well, maybe I could..." or "yeah but this is different" you'll remember that paper and go oh yeah, not doing that again. 

    I also say you're lucky because how much did all of this cost you? I don't know how much all the due diligence costs, but it shouldn't have been more than a few hundred dollars for inspections and appraisals. So, you got a very expensive lesson for very little money. Does it sting? Yep! Does it really piss you off? Yep! Is it fair? Nope! But you're going to face these situations at least a few times in your real estate investment career. And you're lucky because you learned this cheaply on your first deal on what is a cheap property compared to what you will be working on in the future if you stick with it (million dollar properties). I went through similar experiences so I know exactly how it feels (writing a forum post about it soon). Better to toughen you up now so can built up some calluses on your hands now and take what success is coming your way soon! DO NOT quit now, keep going. You didn't walk the first time you tried, you fell again and again and learned from each time you fell. And now (I assume) you walk without thinking about it. So, dust yourself off, write down the lessons you learned and get back out there! 

    Lastly, as for whether or not to pursue suing for damages, that's a conversation to have with your real estate attorney. But make sure you do it when you're calm and level headed. I would even recommend bringing someone with you who is not emotionally involved with this (i.e. not your protective parents) but can be there to support you and knows if you're making an emotional decision versus a logical one. Good luck and I hope to keep seeing you on BP!

    -Jason Pinkerton

    3Reply
  • Michael Brattelli
    Real Estate Broker · Medford, NJ · Member since 2018 · 236 posts · 177 votes
    8y

    I am just chiming in about the realtor fee. Although the sellers pay the commission, the fee is mandatory and is charged by the brokerage not the agents per say. Many brokerages are doing this now and the fees are minimal, typically in the $199-$350 range. A good buyers agent is worth every bit of that fee in my opinion. In NJ almost all the brokerages are doing this. Hope your situation works itself out. As I always say, "everything happens for a reason". Good Luck!

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