Canceling A Real Estate Contract Leads to Lawsuit

Added September 11, 2008 by Ilyce R. Glink and Samuel J. Tamkin

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Summary: A home buyer decides to drop financing for a new home purchase after discovering high financing fees. He's canceling the real estate contract but the sellers have threatened to sue. How can the home buyer break the real estate contract but not be sued? Ilyce suggests the buyer contact a real estate attorney.

Q: My son signed a contract to buy a home and put down $600. The real estate company found a bank who approved him for the loan (over the phone), but he did not sign any paperwork with the bank.

Later that night, after he had had time to think about it, he decided the costs would be too much and he wasn't sure he could make the payments. He tried to withdraw from the offer but the sellers say they will sue him to make him buy the home.

I realized he shouldn't have signed anything, but in this case, would the sellers win such a case? Does he have other options?

A: Your son may have many options and would be wise to review the contract immediately with a real estate attorney. The contract may give him the right to have the document reviewed by an attorney and during that review he might be entitled to terminate the contract.

The contract may, and should, give him the right to inspect the property to determine if the property does not have any major defects. Upon such inspection, if your son finds major defects, the contract might give him the right to terminate the contract.

In some states, if the seller has not given the buyer the proper disclosure documents for the home, the buyer has the right to terminate the contract at any time up until those disclosures have been delivered and the buyer has had time to review the documentation.

Finally, if the buyer doesn't go through with the purchase, the contract may limit the seller's damages to the amount he deposited under the contract. In other words, it's possible that your son's maximum exposure to the sellers could be the $600 he put down.

With so many options, you can see why it would be helpful to have your son sit down as soon as possible with a real estate attorney who can guide him through the process. If you live in a state where buyers and sellers do not customarily use real estate attorneys for the purchase and sale of homes, he should still seek one out that can help him.

While it would be highly unusual that a seller would be able to force a buyer to close on the purchase of the home, if the contract does not limit the seller's damages in case the buyer fails to close, the seller could sue the buyer for the losses and expenses the seller incurs as a result of the failed deal.

The big lesson, of course, is to think first -- and sign later.

Published: Sep 11, 2008

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