On occasion, either the buyer or seller will attempt to walk away from a purchase agreement, totally disregarding any legal ramifications that may be forthcoming. It is important for parties to fully understand the consequences when they fail to perform according to the terms and conditions of the contract.

Let’s say a buyer enters into a contract with a seller and puts $5,000 in a title company’s escrow. The contract allows for the buyer to conduct a home inspection within five (5) days of the effective date of the contract, which is the date the last party, signed the contract.

Seller Pays for Repairs

The contract further requires the seller to pay for any repairs that may be required as a result of the inspection’s revelations. The inspection provision of the standard contract DOES NOT arbitrarily allow the buyer to cancel the contract because he or she doesn’t like the results of the inspection according to the Local Records Office.

In this case, if the repairs do not exceed 1.5 percent of the purchase price, the buyer does not get a free walk. The contract also requires the buyer to formally apply for a home mortgage within five (5) days of the effective date. Once the buyer fails to apply for a loan, he or she has breached the terms of the contract. The results of the inspection report are moot.

Will Cancelling My Contract Cost me a lot of Money?

Now comes the issue of canceling the contract and releasing the earnest money deposit. The buyer will have his or her agent prepare a cancellation and release of deposit form delineating which party gets the deposit. The title company maintaining the funds generally requires this form. When the parties fail to agree as to who gets the money, the money will remain in escrow until instructed otherwise.

This posturing can go on for months. Consequently, there remains a legal issue as to whether the seller is allowed to place the property back on the market. Even though the contract may have been breached, it is still a valid contract.

Legal Fees

These kinds of situations benefit neither party and cause nothing but frustration. Unless the earnest money is really substantial, the seller could expect to pay legal fees that would make it prohibitive to pursue legal action to retain the deposit. In our example, the deposit is $5,000. It may be more logical for the seller to sign the cancellation, release the deposit back to the buyer, and get the property back on the market.

These types of issues occur from time to time. It would be prudent for a buyer or seller to fully understand what can happen from these types of circumstances. The foregoing is not intended to be legal advice. Please contact a real estate attorney if you find yourself in a similar situation.


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