Home Sale Falls Through

Added June 20, 2006 by Ilyce R. Glink and Samuel J. Tamkin

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Summary: A home seller had a sale fall through and weren't told until after the closing date, resulting in many problems. If the buyer didn't notify the seller under the terms of the contract, the buyer may be in default under the contract. The contract may allow the seller to sue for damages caused by the sale following through.

Q: We recently had a sales contract fall through on a house we are trying to sell.

The buyer's lender provided us with a loan approval letter within the stated contract time. Following the approval letter, the lender claimed that the buyer failed to meet the conditions of the approval letter. We were not made aware of this until the closing date.

The buyer failed to schedule utility hookups, despite requesting that we schedule with the utility company to disconnect the utilities. We were forced to provide heat using portable heaters to prevent pipes from freezing the weekend after the closing was supposed to have occurred. The buyer was acting as his own agent and is a licensed real estate agent.

Who can we expect to have liability in the transaction? Is it the buyer/agent, the lender, the agency/broker, or some combination of all three? What damages associated with the transaction can we request they pay for?

A: Many real estate purchase contracts permit buyers to terminate a deal risk-free if they fail to obtain financing for their purchase. The catch is that they must cancel the deal within a certain time period after signing the purchase agreement.

If your buyer failed to notify you as required under the contract and then failed to close, the buyer is probably in default under the terms and conditions of the contract.

When a buyer is in default under the contract, the contract may specify the remedy available to the seller. In some cases, the only remedy available to the seller is keeping the earnest money deposit paid by the buyer. If the buyer put down five thousand dollars to buy the home, that down payment would be lost. It may be less than your actual damages, but that is the remedy specified in some contracts.

If the contract allows you to sue the seller for your damages caused by the sale falling through, you can recover all of you costs associated with the dead deal. These costs may include additional interest payments, costs to heat the home, other reasonable costs to protect the home and if you ultimately sell the home for less money than what you had agreed to with the old buyer, you may be able to get the difference.

Of course, you would have to sue the buyer and prove your damages and you would want to be represented by an attorney that has experience in this kind of litigation.

Finally, your beef is with the buyer: The buyer failed to close. Just because the buyer was a real estate agent does not make that agent's company responsible for his failure to close the deal.

Your contract was with the buyer and you would not have the ability to sue the lender. Anyway, it doesn't seem that the lender was responsible for the buyer's failure to abide by the terms of the deal. It was up to the buyer to terminate the deal in a timely manner if he couldn't get financing.

And if the contract did not give the buyer the right to terminate as a result of his failure to get financing, then the buyer assumed the risk that he could or could not get financing to close the deal.

In most circumstances, if a buyer is wronged by his lender and cannot close on a property because of this particular problem, it is the buyer -- not the seller -- who can sue the lender.

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