Can a seller terminate a contract without a valid reason?

Question

Ok so you would think all the houses I've bought that this would have come up before- I have a property under contract that is a short sale. The property is in pretty bad shape, broken windows, doors, stolen AC, copper pipes etc. I've had the property under contract since August or September.

Originally I had the property under contract for 115k but successfully got the price down to 85k- My plan is to buy, rehab and resale with my comps at 190-200 sales a street over  and another across the street  from two months ago - Originally we thought it was just a first mortgage on the house- first lender agreed to the 85k right before closing we find out there is an unreleased second- closing moved from Oct 30th to whenever they get the second released or negotiated.

Fast forward 2 months later still waiting- no problem as I have other rehabs going and other short sales under contract waiting for approval- I hear the seller wants to no longer sell- no reason provided- they want to wait till it goes to foreclosure- they refuse to sign anything or work towards getting the second trust released or negotiated.  Seller is a realtor, sellers agent sends over a Unilateral Notice of Termination and Release of EMD.

I'm shocked and I'm like you guys have cost me time and money and I refuse to sign a release but I'm hearing that a release from me isn't even needed. I just finished and passed my real estate class just have to take exam and I don't remember every hearing that a seller can just up and cancel just because they feel like it.  Thoughts- I have thought about suing for non performance and the thought has crossed my mind that they could wholesale the property at the new price- don't know if I'm overthinking things here.

Ned Carey · Answer

I totally get that, but as several here have said you MUST READ THE CONTRACT.

A specific performance suit will stop them in their tracks. It causes a lis pendens (pending litigation) and no title company will touch it. Also just because the first approved the short sale for you doesn't mean the offer stays on the table for any buyer at a future time.  Because the lis pendens is so powerful you may not need to actually go through with the case. Hopefully it gets resolved long before it gets to court.

Good luck - Ned

Wayne Brooks · Answer

You have to read your contract.  In some states as Mark Ferguson said, the contract says either party may terminate any time, which I think is crazy.  Typically the contract will for say 90-120 to obtain lender(s) approval for the short sale, and if approval is granted by that time, then either party may terminate, or at some date the contract automatically terminates.  If you and the seller have not executed any extensions, you may already be out of contract.  Someone definitely dropped the ball.  Whether I'm on the selling side, or on the buying side, I determine how many liens and who they are, before deciding whether or not to even pursue the short sale.  Either way the seller has no incentive to cancel and sell to someone else he won't profit from a higher price anyway.

Lorelei Taylor Barrett · Answer

Since there is no approval on the second mortgage, you technically do not have an enforceable contract (all said assuming standard SS addendum is used - nor am I an attorney nor do I play one on TV or the internet). Typically, either party may bail for any or no reason and earnest money, if even collected (which no savvy buyer's agent would put forth unless the state requires it) would be returned to the buyer. End of story. It would seem to me your beef would be with the title company for not finding the deed filed by the second mortgagor a long time before getting to closing. I agree with above advice, really not worth your time to fight. Chalk it up to cost of doing business and move on.

Wayne Brooks · Answer

The key will be the deadline for lender approval as stated in your contract.

Your contract may have expired.

Elizabeth Colegrove · Answer

@Ophelia Nicholson

I third everyone who has said read your contract. In all of our short sales that we have done the seller can't back out. I would read your contract and speak your lawyer. I would also look into the fact that the seller is an agent. Their are extra rules that a real estate agent has to follow. She might have broke one of her license rules if she hasn't broken the contract.

While I am not a lawyer. Most contracts are on good faith. Therefore I would speak to a lawyer about her going against that. Plus short sales are suppose to arm length transactions so I am not sure how she thinks she can whole sale the property. My understanding is that she can't get any gains from the banks loss.

Roy N. · Answer

I'll preface that I have no experience with short sales - though theoretically possible, in practice, they do not exist here.

That said, we have a clause in our agreement of purchase and sale that allows the seller to cancel w/o cause at the cost of 2.5 EMD.

Ophelia Nicholson · Answer

@Ned Carey  apparently its not that the seller cannot get second approval they are refusing to even try to get it. They are refusing to cooperate, send documents or sign anything needed to get the second approved. My question is once the house is released what is to stop them from wholesaling the property to another investor- No one was trying to cancel when they thought the bank would only accept 115k but now that I've spent money and the bank is okay with accepting 85k then they no longer want to cooperate.

Douglas Dowell · Answer

Time to see an attorney no doubt.  The interesting question to me does the lack of short sell approval excuse non performance by the seller?

I tend to agree with the theory that speed kills...or in other words drop this and look for other great deals.

Ned Carey · Answer

I do not know MD law in this area so I don't know if there would be some exception for short sales as @Mark  Ferguson suggested.

Otherwise NO a seller cannot unilaterally cancel a contract.

However given it is a short sale and given that changes have already occurred (a second not mentioned in the original contract shows up) is you contract still valid? Specifically what does your contract say as far as extensions for the short sale? What does the contract say about default? EX: the contract may say that if the seller cannot provide good title the buyers only recourse is the return of the earnest money deposit.

My argument as a buyer if the seller cannot provide clear title by the end of the contract, that is a failing of the seller and the buyer should have the right to extend. But again what is said in the contract regrading default rules.

If the deal is good enough I will fight to keep it, if I know I am in the right. Sometimes just spending a few hundred to file a specific performance lawsuit is enough to get the deal back on track.  Since the seller is an agent you also have going to the real estate commission as a threat.  They won't like the fact an agent broke a contract.   Good luck - Ned

Ophelia Nicholson · Answer

We have short sale approval for the first trust not for the second- They weren't even aware there was a second until a day before closing after my lender docs were already sent to the title company back in October. I have to go check contract dates.

Can a seller terminate a contract without a valid reason?

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