In Kentucky, can a buyer in a real estate contract assign to a 3rd party without informing the seller?

Question

The only assignment clause in the contract specifies that "the parties or . . . their . . . assigns" will be held responsible for the performance of the contract. There is also a clause which states that both parties must be informed in writing and agree to any modification to the contract. The assignment occurred to a person who was unable to qualify for the financing contingency and the seller was not informed until after the orgininal closing date that any assignment had occurred. Does this appear to be a breach of contract? Is an assignment a modification of a contract?

Answer 1

It might not be illegal as far as the agreement between the buyer and seller are concerned, but it damn sure is an illegal "straw man" deal as far as the mortgage lender is concerned. If I were the lender, I'd be threatening legal action against the buyer and the 3rd party and be looking hard at activating any due on sale clause. Straw man agreements like this are bank fraud, pure and simple and can attract prison time.

If the seller was taking back the paper, then he certainly would have cause to activate any due on sale clause and foreclose on the property if payment was't rendered quickly, along with any other remidies such as fraud complaints, etc.

Answer 2

Okay, it's impossible to know for sure without reading the whole contract, but based on what I'd expect to see, here's the situation:

When you have a financing contingency, you also have a date where you have to get a "mortgage commitment" from a lender. If you don't provide that to the lender, the mortgage contingency is waived.

If you did get that commitment in the name of the original buyer, it doesn't matter anyway, because the new buyer didn't get one, and therefore waived that contingency.

The assignment itself was probably not a breach, but failure to close on time probably was, and is not excused by failure to qualify for financing, because that contingency was probably waived by the failure to get a commitment on time.

The remedy is probably limited to forfeiture of the deposit/earnest money, as far as the seller is concerned.

The original buyer and new buyer may also be liable for expenses to the appraiser, buyer's realtor, and buyer's attorney (although I doubt the buyers had an attorney involved in this error).

This was not a smart way to do this.