Q: I backed out of an offer to purchase a house. I signed the offer to purchase on November 2nd and called the Realtor on Nov 14th to say I would not be able to purchase the house.
The contract contains a clause that allowed me to cancel the deal if I was unable to get a commercial loan. I couldn’t get financing for a variety of reasons.
The home owners have written me a letter threatening to sue me for $6,000, in addition to the $1,000 earnest money. They purchased another house prior to selling their present home, before I came on the scene.
I have agreed to forfeit the $1,000 of earnest money, but they are not satisfied with that. Am I liable for more than the earnest money?
A: If you had a financing contingency attached to the contract that permitted you to bow out of the contract if you were unable to get financing within a certain period of time, and you withdrew within that time frame, you should be able to cancel the deal without penalties.
That means you shouldn’t have to lose the $1,000, and you shouldn’t have to fear being sued for $6,000.
If, however, you backed out after your contingency period expired, or if you failed to follow the requirements for backing out of the deal, such as allowing the buyers to provide financing or canceling in writing, then you may be on the hook not only for the $1,000 but for any damages the seller incurred by having to search for another buyer.
Please reread your contract to see what the language says. Then, talk to your real estate agent (you have one, right?) about how to untangle this mess, or even better, you’ll need to hire an attorney to advise you on your legal rights under the contract.
Published: Jan 2, 2006