Owner wanting out of our contract in escrow with my 1k down

9 Replies

Hello folks thanks for this platform being available . I got my first property under contract, already getting approval from underwriting with a hard loan. I planned to keep it for a possible lease option future flip. The owner is now reneging and refuses to sell (I found out he got a better offer from a back stabber lender/realtor I went to for a conventional loan). I am about to go to the court house and file a memorandum for refusal to sell. Any good advice out there on how to move forward with inexpensive legal fees? Or any good lawyers out there willing to help the a "boo" letter?

@Anthony Nieves DISCLAIMER: This isn't legal advice and I could be entirely wrong. Before even spending the money on the attorney, I'd let the seller know what you're going to have to do in order to protect your interest. That might be enough for them to realize they signed a contract and need to follow through on their legal obligation. If they still refuse, then having an attorney send a demand letter would be the next step I'd take. Once you record the memorandum, no title company will issue a policy with that out there. HOWEVER, there's a chance that the seller could sue you for slandering the title, so make sure to check your contract. If you have to sue for performance, it will be costly upfront but likely the seller would have to reimburse your costs. 

As for the back stabber, I hope you destroy their online reputation with honest reviews about their ethics. 

Good luck, I'll be curious with how this turns out. 

Braden C I really thank you for your input. Memorandum is in place, I have a great CPA with A LOT of attorney clients / friends. I really wanted to make this my first BRRRR, however might just sell the agreement to my CPA who's interested in it as well, but wouldn't cross me, he knows my family needs this.

Thanks will let you know! 

Yeah, sellers who are under contract don't get to "back out." I think the big thing is to basically make it clear you aren't going to let him weasel out. Tell him that you intend to sue for specific performance and will demand payment for all of your legal fees. (And maybe you can throw something punitive in there, but talk to a lawyer about that). I would talk to your attorney quick. A letter from a lawyer will likely set the seller straight. 

Wow thanks for that Andrew Syrios, this has been a headache. Here is what one attorney from my CPA has sent back to me: Of course this came lawyer referal came from someone else that showed interest in the property and has the cash to close on it. I need to find an attorney willing to accept a fee for setting this owner straight. Could you suggest one or two?

This would be an hourly litigation - $5K initial retainer / $400/hr. Start with a demand (1 hr); followed by a complaint, exhibits, and ancillary docs (2-3 hours); and look for an early motion for summary judgment. We might force something to happen early and he is out for the $5k (maybe less) or, like nearly any litigation, there could be unknown complications that turn this into a $50K case. Assuming everything is at it appears, there is a fee provision to protect.

The other nice thing her is that with property, equity can be used to offset our attorney fee claim (thus if price is $90K, with no liens/mortgages, and we get a Court order to purchase for the contract price but have a $25K fee claim, we can seek to offset the purchase price and close for the balance of $65K.

Big risk for the seller to hold out…

The purpose for having a property in escrow is so the escrow company ties up the property until both you and the seller 'perform' according to the 'instructions' given to 'escrow instructions'. If the seller backs out then the escrow company is legally mandated that the escrow company has to wait until you and the seller reach a mutual settlement, or the escrow company waits until a court makes a decision.

Currently, you have the property tied up and the seller cannot commit to selling the property to someone else for the time it takes to settle in court. This is a good position to be in. If the new buyer has any brains he won't want to wait several years to tie up his investment money. I've been involved with a few similar cases that took 5 years to settle through litigation. So, you are currently in an excellent position. Let the property sit in escrow, perform your legal obligations and the seller will either have to 'perform' or refuse to 'perform' and if he refuses you tell him you will tie the property up in court for several years and he might realize that the extra money the new buyer is willing to pay is not worth the time and cost for litigation.

Thank you for that reply Mr. Jack Orthman. I am currently sending an email blast with photos and property description to 300 + investors in my data base to see who will be willing to purchase the agreement if I do resolve before it goes that long. I need to find a lawyer willing to write that first "boo" letter, that might just change the homeowners mind. Any suggestions for a good attorney that would do that? 

When someone sues a property seller, the same time the lawyers file the lawsuit the lawyer records a liz pendez against the property and this is similar to filing a lien where the liz pendez the lawsuit has to be settled before the property's title can be cleared so it can be sold.

Before you file a lawsuit, the property has to have some serious potential to earn a profit. Lawyers don't work on a contingency for this type of lawsuit and you can expect to pay more than $50,000 for attorney fees to get a court's decision and then the decision is not always favorable even when you think you are 100% right.

I purchases 7-1/2 acres in 1980 with a 2,000 sq foot house for $225,000. The lot was 17-1/2 acres and the seller told me all the paperwork was approved by the county to split the lot into two 5-acre parcels and the 7-1/2 acre parcel.

Like a fool that I was, the seller kept asking me for cash in advance so he could complete the parcel split and he needed cash to purchase 100 acres in northern California. So, being stupid, I gave him about $150,000 and escrow never closed. I was not in a rush to close escrow, but the seller lost the money I gave him due to bad business decisions and he filed a lawsuit against me for remodeling the house and he claimed he could no longer get a loan against the house and I devalued it.

The attorney fees cost me about $50,000 and the length of the lawsuit took 5 years up until the very last day the statute of limitations ran out where I would have lost the case if it was not settled by a judge on that day.

I sort of wanted to own the entire 17-1/2 acres, but did not have a wheelbarrow full of cash when the case was settled. I never asked to purchase the remaining 10 acres. So, the way the judge thought I would be a winner was he told the sellers to sell me the remaining 10 acres for $150,000 and I was not awarded my $50,000 for attorney fees.

I purchased the property for a vacation home for my personal use. I spent $225,000 for the house, $150,000 for the extra 10 acres and about $200,000 remodeling the house for a total of $575,000. A lot of things caused me to change my mind about wanting the house. So, I put it on the market for $500,00. I did not fet one offer for about 3 years even though I kept lowering the price. Eventually, a buyer offered me $200k and I sold it. 

The day I sold the property and accepted my huge loss I was super lucky because I used the $200k from the house to purchase a 14-unit apartment building for $825,000 and the building was worth not one penny less that $1.4 million. Throughout my life, I made many very bad investments, but was never afraid to cut my losses so I could move my money to something more fruitful.

I learned at a young age that it is better to not get emotional when you get into bad business deals. Don't let a bad business deal consume all your energy and don't let it cloud your judgement. Spend your time looking for a deal that is so much more profitable you will hope and wish the seller gives you back your $1,000.