Enforcing purchase contract - seller canceled breaching contract

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Enforcing purchase contract - seller canceled breaching contract

Greg GaudetPro Member
Investor · Pukalani, HI · Member since 2017 · 413 posts · 291 votes

Aloha all,

I’m buying a rental property, half way through escrow (45 day escrow bc I’m using a mortgage since sellers not in a rush). I found the deal off market, but still suggested the seller pay a realtor 1% to walk them through escrow, but he refused.

Anyway I'm getting a good price, but it's not the typical 20-30% discount we look for, but I'm making that up by adding value in other creative ways since finding those perfect BRRR deals has been extra tough as the markets gotten even hotter.

So I did inspections, found the roof was bad and sent the seller an addendum along with the reports and estimates asking him to share the cost with me (about 20k, out of an 850k+ sale). He responded “I’m not interested in your counter offer, cancel escrow and refund all deposits immediately”. He has already signed cancellation docs (of course I’m not signing, so we’re stuck in limbo for now).

I then explained to him that he does not have a contingency, and he is breaching our contract by attempting to cancel simply bc he was offended that I asked for a repair credit. I explained that we both need to agree to cancel at this point, and I have $4k invested in inspections and other DD on his house already, plus conditional loan approval and a low rate locked m, so I’m not interested in canceling. He asked how much I have invested, and what it would take to make me whole if he decided not to sell.

I strongly suspect he got a higher offer and wants to cancel to take it.

Anyway there’s many more details; but I’m just wandering if anyone has experience with enforcing a contract and performance? Hopefully it won’t come to that, but I know I have a strong case if we have to settle in court... (although hopefully he’ll have to pay my attorneys fees bc if the battle cost 50k that makes the deal much less appealing).

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Stephen KeigheryBusiness Member
Rental Property Investor · New Orleans, LA · Member since 2018 · 716 posts · 555 votes
5y

@Greg Gaudet you should record your contract with the city. This will cloud the title so he can't sell to somebody else for a period without you agreeing. In Louisiana it is 12 months but your state laws will be different. You could sue for non-performance but not worth it.

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  • Stephen KeigheryBusiness Member
    Rental Property Investor · New Orleans, LA · Member since 2018 · 716 posts · 555 votes
    5y

    Got it Jay. One thing to consider for your options is also doing a mortgage to secure the option. While someone shouldn't be able to close over a recorded option it happens but the mortgage will inside this doesn't. Most title companies will assume you have a note and call you up to ask what the payoff is. 

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  • Damaso Bautista
    Rental Property Investor · Hawthorne, CA · Member since 2018 · 655 posts · 900 votes
    5y

    @Greg Gaudet

    Keep us updated on this case.  I personally see this situation playing out as a who has the biggest XXXX situation.

    I would love to know the outcome and how long this plays out for because this is something we can all learn from.

    Thanks!

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  • David Lichtenstadter
    Rental Property Investor · Northern NJ · Member since 2016 · 341 posts · 144 votes
    5y

    @Greg Gaudet First thing you need to record the contract, then you can drag him to closing by showing that you are serious, or you can tell him that you will release him from the contract for a fee, the long drawn litigation route is  Seldomly recommended, only the attorney comes out a winner for the legal fees,

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  • Greg GaudetPro Member
    OP
    Investor · Pukalani, HI · Member since 2017 · 413 posts · 291 votes
    5y
    Originally posted by @Jay Hinrichs:
    Originally posted by @Greg Gaudet:

    @Jay Hinrichs

    Thanks Jay! Yeah in Hawai’i I believe anyone can submit docs to the bureau for recording.

    I never heard a county recorders office be called a Bureau.. and yes we can record anything but with real estate contracts our recorders want notarized sigs of the owner.. So as to keep what the other person was talking about from happening Anyone just recording some contract just to try to cloud title. I mean really think about it .. someone wanted to be malicious and they just go record some memorandum you never signed and notarized against one of your properties.. and you go to refi or sell. and your like WTF is this.. its real estate Ransom wear.. 

    I have had it happen to me in the lending world where bad person will go record a deed of trust and record it with them as beneficiary right before my loan records and then  I have a title claim and the title company has to pay that deed off to clear my title then go after the bad person.

     Disclosure: I don't have any experience with this. But I believe one of my escrow officers informed me that anyone can record title, because the bureau of conveyances accepts whatever you send them regardless of validity. I'm sure there's more to it, that's just my understanding. I would have to be in a seriously nasty situation to consider that. But in this case, it could have been a tool to use. I would've informed the seller first though. Not like he could sell it before I could record, and realistically I probably wouldn't actually do it. 

    Anyway, apparently this is more common on Oahu. I'm working with a seller now that owns a home in town, family owned and inherited. A while back someone took ownership. She said one of the Hawaiian Sovereignty groups goes around recording their members as the owners of properties as their way of taking back the land that was taken from them. While I empathize with how that must feel, I also think it's horrible to make an innocent local family pay the price for this. It cost her tens of thousands to fight. 

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  • Greg GaudetPro Member
    OP
    Investor · Pukalani, HI · Member since 2017 · 413 posts · 291 votes
    5y

    UPDATE:

    @Damaso Bautista - I mentioned this but it was in response to other comments.. 

    The seller has rescinded his request to cancel! What a relief. It was over a week stuck in limbo, and I strongly suspected he was playing games based on his actions. But in the end, I suspect the real issue was that he was not aware of HI's HARPTA withholding. The state withholds 7.25% of proceeds from any non-resident seller to make sure they pay HI's taxes. Once I had escrow clarify the terms for him, and I gave him some hints that the damages would be well in excess of six figures, he rescinded. 

    Side note: many commented on repair requests, and my contingency period being over. Just to clarify, my contingency lapsed because the inspectors are booked 3 weeks out right now and the seller refused to sign my addendum extending the contingency. Regardless, I still chose to send a written request (addendum) requesting the credit, because I've always believed the worst case is he says no. I never would've imagined that his response would've have been an attempt to cancel! There's definitely way more to this story that he is not sharing. But we're moving forward and closing in 2 weeks, so that's all that really matters now. 

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    5y
    Originally posted by @Stephen Keighery:

    Got it Jay. One thing to consider for your options is also doing a mortgage to secure the option. While someone shouldn't be able to close over a recorded option it happens but the mortgage will inside this doesn't. Most title companies will assume you have a note and call you up to ask what the payoff is. 

    there are tax implications to account for.. IE option payments that we make yearly to the tune of 150k  are tax Differed until we exercise the option.. so far he has gotten about 1.5 million from us all without pay tax now.. when we exercise the option he will have to pay tax on those funds.. If we walk from our 1.5  he will have to pay tax. Keep in mind this property we optioned once in the city limits will be worth north of 50 million. the question is will it happen in my lifetime or will my kids/grandkids be thanking me.  A mortgage would indicate a sale.  A properly written option and then recorded will require title company to clear it off same as mortgage.. the note has nothing to do with the Deed of trust or mortgage.. as its not recorded the title company just wants a payoff demand..  I have been lending money for 30 plus years so pretty familiar with how these things work. 

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  • Chris Purcell
    Investor · Philadelphia, PA · Member since 2010 · 739 posts · 372 votes
    5y
    Originally posted by @Greg Gaudet:

    Aloha all,

    I’m buying a rental property, half way through escrow (45 day escrow bc I’m using a mortgage since sellers not in a rush). I found the deal off market, but still suggested the seller pay a realtor 1% to walk them through escrow, but he refused.

    Anyway I'm getting a good price, but it's not the typical 20-30% discount we look for, but I'm making that up by adding value in other creative ways since finding those perfect BRRR deals has been extra tough as the markets gotten even hotter.

    So I did inspections, found the roof was bad and sent the seller an addendum along with the reports and estimates asking him to share the cost with me (about 20k, out of an 850k+ sale). He responded “I’m not interested in your counter offer, cancel escrow and refund all deposits immediately”. He has already signed cancellation docs (of course I’m not signing, so we’re stuck in limbo for now).

    I then explained to him that he does not have a contingency, and he is breaching our contract by attempting to cancel simply bc he was offended that I asked for a repair credit. I explained that we both need to agree to cancel at this point, and I have $4k invested in inspections and other DD on his house already, plus conditional loan approval and a low rate locked m, so I’m not interested in canceling. He asked how much I have invested, and what it would take to make me whole if he decided not to sell.

    I strongly suspect he got a higher offer and wants to cancel to take it.

    Anyway there’s many more details; but I’m just wandering if anyone has experience with enforcing a contract and performance? Hopefully it won’t come to that, but I know I have a strong case if we have to settle in court... (although hopefully he’ll have to pay my attorneys fees bc if the battle cost 50k that makes the deal much less appealing).

     Have an attorney send a letter for performance .. $150

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  • Clint Votruba
    Member since 2019 · 92 posts · 56 votes
    5y

    Congratulations.  I'm glad the Seller decided to do the "right thing" and fulfill his contractual obligations to you.

    I tell my Clients that if you act in good faith and keep your word, you should expect the other Party to do the same.

    Good luck.

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  • Greg GaudetPro Member
    OP
    Investor · Pukalani, HI · Member since 2017 · 413 posts · 291 votes
    5y

    Aloha All,

    Just wanted to provide a quick update; we closed on this purchase last week! Seller got his head straight. I honestly am starting to think he just really enjoys screwing people over (he screwed me and his PM/realtor over many different ways). But hey, we bought a $1m 4 unit home for 850k that doesn't need any rehab and is cash flowing 2k/mo at closing, and we're locked at 2.875% interest for 30 years on it. So even though it's very far from a home run; in today's market on Maui we're very happy with it. 

    And to celebrate: we put another house under contract! (a SFH on Oahu we are wholesaling).

    Thanks for your feedback and support everyone! Jay you da man! 

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  • Alex Kovalenko
    Member since 2020 · 76 posts · 45 votes
    5y

    Yeah - sounds like he got a better offer. Happened to us as well - we were selling our condo, and got an offer that we signed, and then got an offer $20k cash offer above asking no contingencies.. Definitely would have preferred to take the other offer but was too late. Lesson in all of this - patience is a virtue ;) 

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