Buyer signed a contract, and now refusing to honor his contract?

Question

Hi,

Don't know why am I coming across all these problems. Here is what is happening now. Buyer signed a contract last Tuesday to purchase a new house that I just finished. He puts down 3000 earnest money. This Tuesday I get a call from my Agent saying that the Buyer wants out. He also wants his 3000 earnest money back. His reason is that he received an at work email about re-organization of some DOT departments. When was the last time a state employee got laid off?

History about the buyer. I was at the site, when the buyer walked in with his agent, and he loved the house. Right after the meeting he calls me and asks me to lets fire both of our agent to save. I said this is wrong, and advised him to not do that because its not fair. He made me lower the price of the house from 344900 to 330000, and now the above situation. What should I do? Don't pay their earnest money and enforce the sale? If they refuse take them to court? Help please

Thank you in advance

Answer 1

From what you explained in the first paragraph, he could easily get denied by a lender, which would result in no deal. There are several other things in your contract that are 'outs' for the buyer. He probably has a 10 day due diligence period and all he needs is one thing to have the contract cancelled and his earnest money returned to him.
If he is this much trouble this early in the transaction, you can bet it'll just get worse. You could return his deposit, cancel the contract and find another buyer. Or you could keep it and have a headache that may close but probably won't.
His 'reason' isn't enough to get his deposit back tho.
On the other hand, if there is a lawsuit pending you can't sell the property until that is cleared up.
Escrow can't release the funds to either buyer or seller without both parties agreeing, so you want to really look and see if $3,000 is worth it to you to have the property maybe tied up in court for a year, or just give it back and call it a day.
Also, FYI, laws are different in every state so you should check your state Real Estate laws or consult an attorney. But that'll probably cost you a good portion of that 3K.
I'd cancel him and send him on his way, if I were you. You have morals and ethics and he doesn't. He's not worth it.

Answer 2

Can you just keep the earnest money and let him out of the deal? The issue here is, do you want a lawsuit or not? I mean, do you have the time, energy and money for a lawsuit? Do you think you can sell the house to someone else? If so, I suggest you not sue, because if you do sue, you can't sell the house in the meantime, can you?

It is possible to be laid off from gov't employment; I have been. But the buyer sounds like he's manipulating you too. The earnest money is a sort of guarantee, isn't it? So I would keep the earnest money and let him off the hook.

You're coming across these problems maybe because the housing market is getting weird. It will cause people to be cagey and to do odd, nasty things. Be careful and tell people up front what you expect of them regarding contracts, earnest money, and such. I know the law and common sense already covers these things, but it often helps people to be reminded of where you stand.

Answer 3

What does your signed contract say? Has it, along with the earnest money and buyer's and seller's instructions been deposited with the escrow agent?

Most contracts stipulate what will happen if either party fails to complete the transaction as well as any contingency clauses that allow the parties to back out. In most cases if the buyer pulls out (other than for a reason in a contingency clause) they lose their earnest money. Normally the contract would include milestones that have to be met such as securing a mortgage or supplying proof of funds, inspections, etc. If those milestones are not met then the agreement is generally dead and the party that failed ot complete their obligations is liable to the other party for any damages as specified in their contract.

If the deal is dead, the escrow agent normally will not return any funds or documents to the parties without mutual agreement or an order form a court of competent jurisdiction. If the seller refuses to agree to release the earnest money to you from escrow, your only options will be to sue the buyer or try to negotiate a mutually agreeable settlement. I'd suggest negotiation as the less expensive and painful option for both of you.

Consult with a local real estate attorney for guidance specific to your situation.

Answer 4

You probably can't force the sale, but unless there's something in the contract about the earnest money being returned to him, or your state has some kind of law allowing a 7 day cooling off period, you almost surely can keep that. I'd just sit on that money for awhile, and see what happens.

His excuse might or might not be true - state employees DO sometimes get laid off, although it's not real common - but if he signed a contract, that doesn't give him an out unless the contract says that it does.

Answer 5

John, you really need to let your agent, and possibly an attorney, advise you on this. Laws are different in each state, as is the wording of contracts. I've learned in Florida that a buyer can usually find a way to back out and get their deposit back. You can probably make it difficult for the buyer, but is it really worth it?

I strongly advise you to talk to your agent and take their advice. You didn't want to cut the agents out before, you hired the agent for his expertise, now use it. If you don't like what the agent is telling you, hire an attorney. Sounds like you're a builder so you should have an attorney that you can deal with anyway.

Answer 6

Best let your agent handle this, even if he is allowed to back out of the deal the earnest is non-refundable.

Better go through the contract and check before you decide to do anything

Answer 7

Keep the money he paid as down payment.If he tries to give you a hassle about it say,hey!you signed a contract and i'm doing you a favor by not holding you to it.It is possible for state employees to get laid off,especially now.Do not let this hinder your decision though.He owes you the 3000,at the very least.He should be very happy to pay that instead of having to be stuck buying a house that he decided he didn't want,cause thats probably what is going on here,rather than him getting laid off.The fact that he tried to get you to dump your agent should be a red flag.Take his 3 grand and relist the house.