Legal Question in Real Estate Law in California

Re: Mortgage cancellation conditions

Boy, it sure is frustrating when people just back out on their commitments.

Of course the buyer can back out anytime before he accepts transfer of title, i.e. he has the power, but not necessarily the right. He may well be liable for damages in a breach of contract action. Of course, if th property is sold for more following the cancellation, there may be no damages.

I recommend you contact a qualified lawyer to analyse the situation and advise you. Feel free to call for an appointment if you think we may be of assistance.

Re: Mortgage cancellation conditions

The general answer is NO, a buyer cannot back out of a real-estate purchase agreement without legal consequences.

The first additional question an attorney would ask you in analyzing your situation is what sort of excuse is the buyer giving, if any?

The next question would be, what do the other professionals involved (the agents, brokers, loan officers, escrow holders) think is going on; what explanations do they offer?

Next, does the purchase agreement have an arbitration clause? This is usually a check-the-box election, and if elected, any dispute must go to arbitration first.

Next, how large is the deposit, and would its forfeiture to you adequately compensate you? What are your economics of forcing this sale versus taking the deposit and re-listing (if that is an option)?

Often a seller's remedy for breach is limited by contractual or practical considerations to forfeiture of the deposit. Sometimes additional damages can be obtained in court or through arbitration. In rare instances, courts compel the buyer to go through with the deal, although this remedy ('specific performance') is more often imposed upon reluctant sellers rather than withdrawing buyers.

If you can't get this explained to you and straightened out by your agent/broker or some other professional close to the deal, the amount of money likely involved and the complexity of the issues suggest that you should consult with a local real-estate attorney, and promptly.

Re: Mortgage cancellation conditions

Did the sales contract have a maximum allowable interest rate for the loan? There's a place to insert this, but check the contract to see whether it was and if so, how much.

If the buyer backs out for no valid reason, you're usually entitled to the deposit amount as liquidated damages. If there's a dispute, check the sales contract to see whether you agreed to arbitrate the dispute first.

You would probably be best served by having a real estate lawyer review the sales contract(s), tell you what each party's obligations are, and what your options are. This should be done quickly, so the property is not tied up in arbitration/litigation and unable to be re-sold.

Re: Mortgage cancellation conditions

Generally, a contract shows a maximum interest rate that a buyer is willing to pay, and that is part of the contract. If they do not get that rate or lower, they may have the right to back out. On the other hand, usually various contingencies, such as loan contingencies and inspection contingencies, are removed earlier in the escrow, which would take away that right to cancel the contract.

Usually, there is a liquidated damages clause initialed by both buyer and seller. If that is true in your case, you are entitled to retain the deposit up to 3% of the purchase price.