Buying multifamily, seller broke contract.

[Brian Ness]

We are new investors trying to put together our first deal and working with a real estate agent. Our agent found a distressed property, which was listed on the MLS, we thought it had potential and we made an offer. Our offer was accepted, signed and we put up 3k Ernest money. The seller was facing foreclosure, a fact we did not know about. Now it looks like the seller just deeded the property to another investor (apparently an acquaintance of the seller agent) for 25k in return for the new investor receiving title. The bank agreed to stop foreclosure and the existing mortgage is still in place. The seller's agent brought this other investor into the deal, despite the existence of our purchase contract. Now we're told that this new seller has stepped into the place of the previous one, and wanted to proceed with our purchase contract.

I would have thought that the seller's agent would have been obligated, when facing a foreclosure deadline, to seek a cash offer from us to stop the foreclosure first before bringing in a third party. What should have been a good deal for us to negotiate was given away by, in my opinion, a dishonesty dealing seller agent. By our estimate, our position is harmed by approx 50k. We had paid for a contractor estimate and an inspection and would have been looking to negotiate down the price significantly; which clearly the original owner had equity and intention to negotiate. Now the new owner is unwilling. Does anybody have experience trying to remedy a broken contract anything similar to this? Trying to decide if its worth getting an attorney involved or just to learn and move on. Thanks for any input.

[Greg Scott]

From your post, it sounds like you are still able to buy the property at the price you originally agreed on the original timeline.  While the change in owner might have been legally questionable, what are your damages if purchase price and timeline are unchanged?  

A good lawyer would argue that this new owner protected you from any damages. Since you had no knowledge of the foreclosure, if this other person hadn't stepped in, you might not have been able to buy the property at all.

Your best bet might be to see if you can just negotiate down the price some more as you may have the option to cancel the contract as invalidated.