If at first you don't succeed...

Rehabbing and House Flipping 66.7K Posts 7.5K Discussions

... then the late Aaliyah would advise you to dust yourself off and try again.

But how does this work with regard to selling your flip to your end user? If your first buyer is not able to obtain financing (fairly commonplace) yet refuses to sign a cancellation (less common), then what do you need to do to sell the property? Can you simply open escrow (presumably with a different escrow company that has no knowledge of your first escrow) again and close it like there isn't somebody with a claim to the property?

Do you open yourself up to (non-frivolous) litigation by doing this? Is the claim the first buyer has to the property valid? Would the second escrow company have any trouble recording the closing (I'm thinking this would be the case if a Lis Pendens is filed)?

If any of you have previously dealt with this, would be great to hear about your experience.

When is the close by date in the contract?

Jon Klaus, SellPropertyFast | [email protected] | 214‑929‑6545

July.

July, 2012? They are in breach, aren't they? What's the attorney at the title co. say? I think I'd push for an answer. You might want to spring for a consultation with your own lawyer if the title company won't support the terms of the contract.

Jon Klaus, SellPropertyFast | [email protected] | 214‑929‑6545

Of course they're in breach. No one is debating that.

I guess I should have prefaced it by saying the property is in CA, the land of bilateral cancellations (and no closing attorneys). The escrow company is a neutral party, so they're not really allowed to have an opinion.

Bummer, sounds like you need to pay a lawyer. Then move to Texas.

Jon Klaus, SellPropertyFast | [email protected] | 214‑929‑6545

If the contract stated July was the end date. And you BOTH agreed to that date to close by, then that seems pretty bi-lateral to me. I may be seeing why California is such a rough place to do business.

801‑592‑9405

To explain that further... the purchase contract needs to be fully executed and thus bilateral to be a valid contract. However, the way CA views canceling a contract, is that while technically either side can cancel unilaterally, the cancellation carries no weight and cannot be executed by escrow unless it is bilateral.

The scenario you end up with is that when one of the parties refuses to sign the cancellation, the EMD stays in escrow for seven years, and if a resolution is still not reached through arbitration, mediation, litigation, or castration, the EMD is given to the state of CA.

Texas is starting to sound pretty good, now that I think about it.

@Jake Kucheck That sounds insane. Since your the seller and they presumably put up the deposit, no reason to worry about it. As far as getting it sold being that your a real estate agent I would speak to your broker about the situation. I imagine that it must be fairly commonplace. You could also speak with the board of realtors. Here in Florida realtors have access to an attorney for questions free of charge, you might check that out to. Lastly if your working with an experienced title company I would think they could give you some advice as to how to handle it.

I still don't understand why you need both to cancel. Shouldn't the contract be void now under it's own origination conditions, which both parties agreed to?

Medium bplogoDylan Long, Provectus Designs | [email protected] | http://www.provectusdesigns.com

Jake isn't having a contract issue, he's having an escrow issue in CA. Escrow here will not usually cancel an escrow, even if the terms of the contract provide for cancellation because of breach or failure to perform, without agreement in writing from both parties.

@Jake Kucheck Does your buyer still plan/want to buy? Will they release if you refund their EM in full? Why haven't they received at least a letter from your attorney stating they are in breach and to release? Why haven't you filed an LP?

@Account Closed - Yes the new buyer still wants to buy. The old one wants their EMD released in full, which is ridiculous. Not going to do that. They have received such a letter. Just being difficult, to no rational end. Not sure how filing an LP helps me here... as the seller. The goal is to sell the property to the new buyer... an LP would make that harder, not easier. And I'd be filing it... against myself?

I misunderstood. I didn't understand that you have new buyer in place. You are holding out for keeping EMD when you have a buyer in place and ready to close? How much EMD are we talking about? Is it just the principal of thing? The only times I've been able to keep EMD is when the other party agreed that they owed me for keeping the property off the market. Not sure how much EMD would be worth suing for....if it's $10K or less, I'd let it go and get the deal done with the new buyer.

Simple, refund the EMD. Isn't your time more valuable?

Wasn't the transaction subject to financing? If not then why not? Something isn't right here.

I'd rather not refund on the EMD on principal, but was trying to determine whether or not doing so would incur any unnecessary liability.

Yes, clearly if I refund the EMD the first buyer will go away. Until I was able to close with a new buyer, I have no incentive to do that. Now that I am, I'm still not sure I have an incentive to do that. That's what I am trying to figure out, but it seems like everyone that lives in another state has trouble understanding this concept.

Of course there was a financing contingency. It was removed, along with all other contingencies. . Thus, the buyer has no right to their EMD. However, unless the buyer also sees it that way, escrow cannot simply release their EMD to the seller (in CA). I don't know how much clearer I can be about the process than that.

I have no good advice except to say that I'm pissed off for you. Ugh.

Do you have grounds to sue for punitive damages, as the first buyer is essentially blackmailing you by not allowing you to sell unless he gets his EM back.

Is the broker for the first buyer willing to do anything?

I have to imagine this happens all the time. What if the buyer refused to ever sign a termination agreement, no matter what? There has to be some recourse, I would think.

@Jake Kucheck , you could refund EMD then file in small claims court to get it back. Not the best solution obviously but at least it gives you opportunity to follow through on the principal of the thing.

Also, what is stopping you from opening up another escrow and selling to the new buyer that way. If first buyer doesn't file LP and title will insure then you are on your way, hmmm, you may have to disclose the open escrow to new buyer. You can litigate with first buyer 'till the cows come home after closing.

@Jake Kucheck Have you spoken to your broker or title company about it? I would think either of them would have plenty of experience with this. Also your broker may be able to put some pressure on the broker for the buyer. As I said before I'm sure real estate board could give you some advise and probably provides free telephone access to a real estate attorney. I'm interested to know how it's handled when you clearly are owed the deposit by the contract but the seller is holding it up. As J Scott said I'm sure there is some recourse. You have to decide whether the deposit is worth the time, hassle, and possibly money up front to get it resolved. Maybe you can make a deal with them and give back a portion of it to get it taken care of now rather than later. You should use the in state resources your license provides. Keep us updated.

In my area, offers are always contingent upon getting financing. Why was the financing contingency removed if the loan is not approved? It sounds like either the mortgage company lied to you or the buyer went out and bought a new car or spent their down payment at the casino and can't close.

If you have a new buyer lined up, I would just refund the money to the first clowns and sell it and be done. Why have a pissing contest when you can be on to your next deal?

J Scott and everyone else who asked about recourse, the recourse is that the buyer never gets his deposit back and it goes to the state of CA after 7 years (as previously mentioned). I'm cool with that, but I'd rather get it myself. In no circumstance do I see myself giving them back the EMD.

Anyway, the only distinction I was really looking to make was whether or not the first buyer would have a legitimate claim to the house if they didn't go the LP route. It sounds like nobody knows the answer to that question, which isn't overly surprising. The broker and legal assistance provided by CAR can make suggestions, but they can't stop irrational people from filing (maybe) frivolous lawsuits.

In any event, probably done with this thread unless somebody wants to actually answer my initial question.

Lets say you are entitled to damages. Does the EM say something like you are entitled to the earnest money as liquidated damages? What are your damages? Can you resell the house for the same price?

What if, just for the principle of it, the buyer decides to sue you just to tie up your property for 6 months or longer. Lets say they want revenge and now they have damages in grief or some such
baloney.

Why not get a little legal advice? Got a good attorney?

Did the buyer have their own agent?