Seller suing me for backing out

93 Replies

@Bryan Stocklas

Of course I’m not an attorney, but even if you are sued the chance of a court ruling in favor of the seller in a matter like this is virtually nil.

Never buy a property under duress. I agree with the other comments that this is an intimidation tactic.

I had a very similar scenario happen to me and it turns out the seller was hiding a 10k repair, thus motivating the seller to bully me into the sale.

@Bryan Stocklas

Have a decent argument, but definitely gray. That’s what the judge would be for, to interpret the contract and who’s right.

Definitely would have been cleaner to back out during due diligence period, but understand it probably wasn’t a problem for you, only now that it’s a problem for home insurance..

Not super often they would actually sue - more often they would just make a claim to earnest money deposit… that’s what the deposit is for…

Read your "buyer default" section of PA..even if you're in default it would probably be that they can make claim to your EMD or force you to perform. I'd think "suing" wouldn't be one of the options..

Kinda seems like you have a stronger case and I’d just ride it out… but I’m not an attorney, nor have I actually experienced exactly this… just thinking it through..might help to point out that section of PA if it does help your case

@Joe Hammel

Upgrading electrical panel isn’t a big deal. Easy call to electrician and a couple bucks… wouldn’t be a deal breaker for me (I’ve already bought rentals that need this update). If you can find an insurance provider who would do it, as others have mentioned.

Just to share that thought as well.

Hi Bryan,

I am not an attorney and this should not be considered legal advice.

I don't know how they conduct real estate in New Jersey or Illinois, but based on my experience here in California:

If you have a physical inspection contingency and/or a loan contingency, you should be able to exit the purchase contract penalty-free and get your earnest money deposit back.

I am not seeing the grounds for the seller to sue you for damages. It is likely an empty threat.

Upgrading the electrical panel should not be a deal killer. I negotiated seller electrical panel work as part of repairs on a purchase transaction in the past two weeks.

Of course, to make that work, you need to have a reasonable seller. The seller needs to understand that the insurance company or lender will require a licensed electrician to do the work. He cannot do the work himself. What happens if he does the work, you complete the purchase, and three months from now the place burns down due to his faulty work? He shouldn't want to expose himself to that kind of future liability.

If you still like the deal, I would continue to negotiate and find a way to get the seller's cooperation to complete the transaction. Then all this talk of suing will become moot.

    Good luck!

    Originally posted by @Bryan Stocklas :

    @Matthew Olszak ok yea the letter just says

    “Neither of the cited references constitutes a qualifying deficiency which would be a legitimate basis for termination of contract”

    Bah. In Illinois most of our contracts have an "attorney review" contingency which most attorneys extend while inspections are conducted. So they can simply state, "The Buyers’ attorney does not approve of this contract in its entirety" and its cancelled without getting into discussion over the whys. Of course the agents usually exchange the rationale but nonetheless its cancelled. What does your attorney say? Did they extend atty review during inspection as they should have?

    Get a denial letter from the lender. Cancel the contract. We went through attorney threats in CA. We ended up hiring a real estate litigator and one letter from him the seller caved. Our seller was super cheap and my guess is this guy is too…so they got scared once they saw we weren’t going to be forced into buying the property. 

    @Bryan Stocklas Is the seller’s “lawyer” his cousin, LOL? Although many well-wishers want to believe the letter is no more than empty threats, the sad truth is there are plenty of ignorant, desperate people who will file frivolous lawsuits that one has no choice but to defend. Consult an attorney, forthwith! You’ve got this.

    My suggestion would be to READ THE PURCHASE CONTRACT, the contingencies and deadlines. In Texas, a buyer can cancel for any reason prior to deadlines but will lose the option fee. If the owner wants to replace the breaker panel as a DIY he must be a currently, licensed electrician, pull permits otherwise the inspector and/or loan officer (LO) will deny the loan. Check with your local New Jersey MLS/Realtors association and see if they have a legal hotline you can contact to get the right advice. I think the seller and attorney are posturing with their legal claim, but as I had mentioned before, read the purchase contract and highlight the paragraph (PDF link attached). From a brief review of the NJ contract, I think para. 3(c) is your client's "out" but check with an attorney since I am not an attorney.

    New Jersey Assn. of Realtors ®

    Good luck and keep us updated.

    If you cannot fulfill your financing commitment due to not being able to get insurance, which is required to get a home, to secure collateral, which means the lender will not loan you the money, how are you being forced to proceed? 

    @Jay Hinrichs   doesn't the escrow have to be released for the seller  to sell the house to someone else?  Isn't it encumbered by the sale contract etc?   You certainly have more contract experience they I do but if you are still under contract with one person can you just go and sell to another? not arguing just wondering what I am missing.

    @Bryan Stocklas I am not familiar at all with Illinois contracts but there are a couple of things you've mentioned that I am not understanding. You said the seller is claiming the panel is properly working so it doesn't give you the right to terminate, what if you had found a severe mold issue? The house would technically still be functional, would they expect you to close? You also mentioned the panel isn't properly wired, that alone should be enough for you to cancel the contract unless it gives the seller the option to correct it. 

    You also wrote the attorney's letter says “Neither of the cited references constitutes a qualifying deficiency which would be a legitimate basis for termination of contract”, did you cancel based on the financing contingency or the inspection? If your contract was indeed contingent upon financing, and you can no longer obtain financing, then this seems pretty cut and dry. 

    I agree with the majority here, they're very likely just blowing smoke. I'd get your realtor to do some work and if he/she isn't helping then get their broker involved. 

    Originally posted by @Uchenna A.:

    @Bryan Stocklas

    How did the insurance company know the house had a 60amp panel?

    Electrical service type is one of many things that needs to be disclosed to an insurance company when you apply for insurance. 

    @Bryan Stocklas is seems strange he is pushing so hard for you to do this deal. That indicates there may be some other underlying issue here. I am not sure why you would hire an attorney instead of just agreeing to the cost of the electrical panel update. Maybe the attorney is just a friend or family member that offered to draft the letter. As others said, a demand letter is not a lawsuit. Say nothing and sign nothing. Have your attorney handle it all.

    Originally posted by @Colleen F. :

    @Jay Hinrichs  doesn't the escrow have to be released for the seller  to sell the house to someone else?  Isn't it encumbered by the sale contract etc?   You certainly have more contract experience they I do but if you are still under contract with one person can you just go and sell to another? not arguing just wondering what I am missing.

    Ya did not mean to be forward in my response..  In MOST instances yes that attorney or escrow company will not close that transaction if its in dispute.. However the seller can simply open escrow with a different title / escrow company /  Or attorney which ever is appropriate for closings in that state  and sell the property..  

    Sometimes BUYERS try to tie up sellers by recording options or actually bringing a Lis pendence action.. but that cost money time and Attorneys just dont do that because someone pays them.. The attorney can get sued for Slander of title there has to be a very clear case before someone files a Lis pendance to just tie up the property.. Of course Guru's and ARM chair Internet folks like us think its no problem but thats simply not the case.

    So in this instance the seller could just move to another closer  his current transaction just sits in limbo until the buyer and seller agree on EM resolution ..  But I think this is IL which is Attorney closing state ..  so these issues are basically covered in the closing attornies fee structure in other states to bring an attorney on would mean a retainer etc.. and simply not going to happen over something like this were damages are tough to impossible to prove.

    This is why our contracts that i see on the West coast have an auto matic  Liquidated Damages clause that says no damages above the EM deposit but it still takes both parties to sign the release. 

    I just had that happen yesterday in Fact in South Carolina buyer of one of my new builds.. goes out and borrows money 10 days before closing thereby screwing up his DTI and the loan is denied .. they wanted out because they had a finance contingency.. I balked because up to the point they went out and borrowed money they were approved.. I thought we would have a tussle over it but the buyer just signed the termination and released the EM to me ( 5k) This is exceedingly rare.. Although just last week in Baltimore I had a property that was being run through Ashland Auctions and the buyer no showed and did not close on the closing date and had a 7500. deposit and Ashland wired me my half next day.. Again very rare that buyers dont squawk.. But these two properties went back on market next day.

    $500 EMD? I get this is your first deal and you are being threatening and that can be scary a fudge. There are several likely outcomes here......

    1. You get another insurance co.  If you want this deal then stop reading/responding here on BP and go get another insurance co.  There are plenty that will insure this deal either for good or insure it and give you 30 or 60 days post purchase to get the item fixed

    2.  If you don't want this deal you get a denial letter from your insurance co and send it to your agent and be done.  If both of you want to argue over $500 you can.  Unless your PA lists the acceptable reasons for a mortgage denial you are fine and I doubt that is the case, but read it and be sure.

    No one can sue you for performance (well, they can, anyone can sue for anything) when you meet the criteria for the escape clause, mortgage denial.  

    I think you said he wanted to sue you for marketing expenses as well, is that in the PA?  Even if it is, you have the trump card, a denial letter - you can't get a mortgage on the house, this should be end of discussion - send them that and a mutual release and see what they do. 

    Also, learn in this business a lawyer letter isn't scary.  It is just a letter.  Forward it it your lawyer and be done.  The odds of anything major coming of this are nill and unless you have a very odd PA the odds of you prevailing in a waste of time suit if it comes to that are great.  

    @Bryan Stocklas   It sounds like you had a right to inspect for informational purposes only so you need to walk on financing.  Me, If money wise it works I  would just try to get the electric credited or use one of the insurance companies @Jim Spatzenfeld   uses. Good possibility at least you lose EM if you walk and any other costs you paid. You would upgrade the electric anyway.  What is the local cost of an upgraded panel?  Is it still a good deal with that cost rolled in?  He could be blowing smoke but what is it gonna cost to find out? What does your real estate lawyer say (the one that did contract review).

    @Jay Hinrichs   Thanks for the explanation  I guess since contracts are private going to another closer works. It looks like you have seen a few sneaky tricks in real estate.