Question: Hi all – after signing the contract to sell our house, making all the necessary repairs to the house, and making all the arrangements to start our move, the buyer’s financing fell through and we are now being pressured to sign the release form that will essentially break the contract, without any restitution for the money that we’ve put into the deal, or having some way of enforcing the contract. Right now we would just like to know what our rights as sellers are…seeing as we are the only one of the three parties involved (us, the buyer, and the buyer’s mortgage company) that held up the contract, we feel that the others shouldn’t be allowed to break the contract so easily…we feel like we’re getting a raw deal.

Here are the details:

The buyer was pre-approved for $225000.

The buyer viewed the house on 2/11/07, and the Purchase Agreement was prepared and signed by both parties on the same day. Final selling price was $196000. Closing was scheduled for 4/21/07.

Home inspection occurred on 2/14/07. There were 2 repairs requested by the buyer which we did both at a total cost of $999. One on 2/22/07 and 2/25/07.

3/16/07 was the deadline specified in the contract that the buyer would obtain a commitment for the loan. Once this date passed, and our realtor did not contact us that the contract was in jeopardy, we started making arrangements to move out. Here is the exact wording in the contract: “Buyer shall make a written application for the above mortgage loan within 7-10 days after acceptance and shall obtain a commitment for that loan on or about 3/16/07. If, despite buyer’s good faith efforts, that commitment has not been obtained, then this agreement shall be null and void. Upon signing of a mutual release by seller and buyer, the $1000 earnest money deposit shall be returned to the buyer without any further liability of either party to the other or to broker and their agents.”

After that date, we spent about $250 in deposits and services for our move to the apartment we will be in while we search for our new house (including storage units, which we have 3/4 of our stuff in, and are contracted at $230/month going forward).

On 3/31/07, we received a call from our realtor that the buyer’s financing was in jeopardy due to the problems with the sub-prime market. On 4/2/07, we received confirmation from our realtor that the financing fell through and the sale was off. Apparently between the time that the commitment was obtained and the final approval was processed, the mortgage company decided to not honor the mortgage pre- approval. The buyer’s realtor told our realtor that the buyer had a “creative” conventional loan and that the first loan was not a problem; it was the financing of the “piggyback loan” that was the issue. The buyer’s realtor also claimed that they had pursued several lenders and none would provide financing, therefore the transaction was off.

This just doesn’t seem right to us! We feel like we’re getting shafted and are being told “sorry, that’s just how it goes”. After wasting 2 months and close to $1300 we sure are feeling disgusted and upset. Do we have any valid legal grounds here…is there any way we could enforce the contract, or at least get our $1300 back from either the buyer or the mortgage company? Are we entitled to the $1000 earnest money, since the only way the buyer should have gotten it back was if they voided the contract (for financial reasons) by 3/16/07?

I would imagine this is probably a very unique situation, as a one- month swing in either direction and the buyer’s original loan application would have either been approved without a problem or denied up front. The mortgage company backing out of the deal 19 days before closing is decidedly inconvenient for us.

Thanks in advance –

Answer: It sound from what you have below is that the purchase contract has a funding approval as a condition of the purchase. You are bound to release the deposit. In some states, your failure to do so, will subject you to punitive damages depending on agreed method of dispute resolutions in the contract. You should have been counseld that you should not make any moving plans till the funding approval is in place else you carry the risk.

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