Real Estate Contract Cancellation - Help Please!?

Question

On 5th Dec 06, I entered sales agreement to purchase home in Illinois, closing date of Feb 23. I paid earnest money of $3.5k. One contingency of the contract is that I must receive firm commitment on loan, which I do not have yet. I have had a couple of extensions to this given that the loan process has been lengthy (the seller agreed to these extensions).

However, after review of finances, I am now concerned re. my ability to meet financial obligations of the loan, initially (closing costs) and ongoing mortgage payments. Given that closing date is nearing, do I have a way to cancel this contract without any penalty ie. being sued. I realise that I will most likely lose the earnest money but want to avoid any further penalties and / or being sued by the seller.

Thank you.

Answer 1

Jen. Don't give up your deposit!!

Contact your Agent and tell them you have been demoted at your job and no longer qualify. Of course you need to get some coraberating paperwork. Or just make sure that you don't get the loan. Contact the lender and say you mistakenly filled in the incorrect income, you just reread the whole thing and caught your mistake. Whatever along those lines. Did your agent write in a certain interest rate on the contract? Can you actually get that rate? if not, there is your out.
But if you can really trust your agent to work hard for you. Tell them that you can't afford the house. They will get you out of it and conserve your deposit. That's their job to take care of you.

Whatever you do don't just call the title co or escrow co and cancel, then you will certainly loose your money.

Are you sure you aren't just getting buyers remorse? Will you really be happy renting rather than owning? Can you find another home that is more affordable?

First and foremost take care of yourself. But don't just kiss away 3500. You will need it in the future.

best of luck,

Answer 2

The fact that your loan process is taking so long leads me to believe that there may be some difficulty in obtaining financing. Are you using a mortgage company or a mortgage broker?

If you are using a direct lender, find out what underwriting conditions are required. If you do not meet those conditions, you will not qualify for the loan.

If you are using a broker, they may not have found a lender who will take on your loan. Have them state that they were unable to secure a lender for you. That means your loan is denied and you can be released from your contract. Or if they have found a lender, again get the underwriting conditions.

Did you receive a good faith estimate when you first did your loan application? Were those terms acceptable to you at that time? Has there been any changes in your financial situation that makes you feel that you can not make the payments now? If so, let the lender know about those changes, that could affect your ability to obtain the loan. Also ask if there have been any changes to the terms of the loan since you received your good faith. If there are significant changes, you do not have to accept that loan.

In any case talk to your Realtor and your lender. Maybe a review of your finances and the actual loan terms may help you feel more comfortable with the future payments. If not, they can assist you with finding a legitimate and legal way to terminate the contract without penalty. If the sellers have had a lot of interest in their property, they may release you, keep the earnest money and move on so that they can get a new buyer. If the market hasn't been so hot, and there hasn't been much interest in this property, the sellers might be willing to assist with closing costs just to get the house sold. Again, talk to your agent. Don't just give your money up if you don't have to.

Keep in mind that getting your loan denied will have an impact on your credit report. Also if you just choose to walk, the sellers and the agents could sue for breach of contract.

Review your circumstances, why you wanted to buy in the first place, and think about the fact that you might be having a case of Buyers Remorse.

Good Luck.

Answer 3

I know that you will lose your earnest money, but you need to read the fine print in your contract. If you cannot obtain financing, then that is an immediate out...however, sounds like you may be stuck if the personal financing is the issue. I would re-read your contract and contact your buying agent to make sure that the seller's are not entitled to persue litigation. I don't think they are - since your are forfeiting your earnest money, but you should double check just in case. But, here is another option you may have - if you increase the mortgage amount, and if the seller agrees, you can offset your closing costs by this increase (seller gives you a check at closing for the above-and-beyond price). This is a customary practice - you just need to make sure that your seller understands. So - that will take care of the closing costs - but now you need to look at your bottom line payments per month. If you aren't able to hack those, you may be better off getting out of the deal for the $3500 you paid. Hope this helps - and best of luck to you!

Answer 4

Didn't you realize there would be ongoing mortgage payments when you put the down payment on the property? You shouldn't be paying the closing costs unless that's in your contract. Maybe you should hope that the loan is not approved which would then void your contract but if you get that approval, it sounds like you may end up losing more than just the down payment should the seller be able to prove hardship. Read your contract for any loopholes. Now might be a good time to consider increasing your income or decreasing your spending.

Answer 5

Sounds like you may have answered your own question. The loan was conditioned upon obtaining a real estate loan, you did not mention terms of the loan , interest rates etc which may have been a part of the contigency. Sounds as you may get the loan, but not the terms and thus rising cost.

In may be best to have a Ilinois real estate attorney review your contract. $3,500 is a lot of money compared to an attorneys hourly rate.

Best to you.

Answer 6

Check with your Legal Advisor....but if you can't find 'satisfactory' (to you) financing, I believe you can walk away without penalty and with most of your money back....if not all.