Must expired contract be honored if escrow has not been released?

[Nancy Roth]

Hello, friends,

I'm going to describe a dispute without revealing my role in it. Truth is, the side I'm on is really not important, and I think I'll get the best and most unbiased advice if you consider it from both points of view. I'm truly stumped!  

This is taking place in Washington, DC which is a very powerful seller's market at present.

A buyer who holds a contract to purchase an off-market property has allowed the contract to expire while the property was undergoing a court procedure to clear title.

Informed early on that the contract had expired, the buyer declined to renew or extend the contract, but did direct the title company to retain the escrow payment ($5000). The escrow remained in the possession of the title company throughout the period of the court procedure, which has just ended, with the title now clear and ready to close.

The seller now claims there is no obligation to honor the expired contract despite the retention of escrow funds by the title company. The seller has received none of the escrow funds.

The seller at first asked the buyer to put in a new contract at a higher price.

The buyer insists that the original contract and contract price must be honored because the escrow payment has remained in place.

I’ll add something that may not be strictly relevant but it has poisoned the well from the perspective of the seller. Before the court case was completed the buyer or an associate went in and removed plywood from the entrance of the property and replaced it with a flimsy door, without the knowledge or permission of the seller. The seller took a picture of the door and called a locksmith to reinforce it, but locksmith didn’t get there before the door was broken and the property was entered illegally. A city official passing by the property determined it had become a public danger because of the break-in and ordered the city to replace the plywood within 24 hours, without notice to the owner. The city also slapped a fine on the seller.

The buyer denies knowledge or responsibility for the action on the property and the fine. 

The seller is furious and frustrated. The seller now asks if the seller may ignore the original contract from this buyer, and list the property.

Seller’s attorney cautions that if the seller tries to sell the property to another buyer, the seller runs the risk of a lawsuit, which, regardless of the merit, would be time consuming and costly to the seller. Attorney counsels against that risk and believes the seller should try to negotiate a higher price from the original buyer but settle at even if the buyer does not produce a new contract or a higher price.

The title company sides with the buyer and suggests that properties are bought and sold all the time with expired contracts, and the absence of an extension addendum does not matter because the escrow is still in pocket.

As a realtor I was trained to be hyperaware of the status of the contract and never to let it expire unless the buyer wants to walk. But we all know n real life people do all kinds of things, including close with an expired contract. I have also asked for my broker's guidance.

What's your best judgment? Consider answering the following questions:

a. Does the buyer retain the right to complete the purchase in spite of the expired contract because the escrow is in place? The buyer's counsel has advised that the the contract must be honored.

b. Can the seller list the property and disregard the expired contract? Or must the seller honor the expired contract?

Also, is there an alternative course of action to resolve this dispute? I'm missing it if there is.

Thanks for your time and thought, 

Nancy E. Roth