Legal Question in Real Estate Law in California
On January 22, 2010, my daughter entered into a real estate contract to sell her California condo. the terms of the contract stated the buyer was to obtain a VA loan. On February 18, 2010, my daughter received a telephone call fromher real estate agent telling her the buyer could not obtain a FA loan and was going to start the process all over again seeking an FHA loan. My daughter decided that she did not want to proceed with this buyer, and told her real estate agent that she wanted to cancel the contract. Her agent told her that she cannot cancel the contract, and that she is responsible for all of the byer's fees (appraisals both VA already done and FHA to be done today, property inspection
report, etc. plus ALL real estate commissions totaling over $10,000. She has already pre-paid $1000.00 in commissions to her real estate agent. Can my daughter terminate this contract withour incuring fees and having to pay commissions based on the buyer's failure to obtain a VA loan, and was it legal for her agent to collect pre-payment of $1,000.00 from her when he listed the property on 01/14/2010. Thqnk you very much for your assistance.
4 Answers from Attorneys
The agent is basically correct, although she may be inflating the damages your daughter would be liable for. The loan contingency for the VA loan is for the buyer's benefit, not the seller. It provides an opportunity for the buyer to get out of the contract without breaching it if they cannot get financing, or the financing they plan on getting (e.g. they can't get an interest rate they can afford). If the buyer wishes to be bound by the contract even when they can't get the financing they planned that is no grounds for the seller to get out of the contract. So if your daughter cancels the contract she will be in breach of contract and liable for the damages incurred by the buyers. In addition, the listing agreement with her agent most likely has a clause that says something about if she breaches a contract the agent arranges for her, it is also a breach of the listing agreement and the commission then becomes due and payable. That is perfectly legal and reasonable. I also know of no law prohibiting an agent from collecting a deposit or prepayment of part of the commission. Agents incur a lot of expense in listing and showing a house. Most agents front that expense and just get it back when they get their commission, but it seems legal to get some of it covered up front, if not entirely professional in the industry. Also customs vary by location, and it may even be the norm where the listing is.
The previous answer is accurate, as far as it goes, but the contract may contain other provisions that cut in favor of the seller, and I'd recommend looking for those rather than focusing entirely on the switch from one type or loan to another. For example it seems rather likely that there is some kind of a drop-dead date which is a positive deadline by which the buyer must perform (fund and close escrow) or be out of contract. If the buyer is unable to perform in a timely fashion per the purchase agreement, there would be no liability to the buyer or the listing agent.
The contract should be reviewed to determine whether or not the VA loan was a contingent clause or if the buyer breached the contract, in which case he would be liable. Contact me directly.
I am currently dealing with a similar issue. I need to review the contract. Some agents are shady in how they practice, but you have to know the law.
Best,
Daniel Bakondi Esq.
The Law Office of Daniel Bakondi
870 Market Street, Suite 1161
San Francisco CA 94102
Daniel Bakondi, Esq. [email protected] 415-450-0424
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