Backing out of a contract, past the inspection period?

[Sinh T Tsang]

I have signed an agreement with a seller that seems to really want to get rid of his home quickly. The home is for sale in "as in" and "cash sale" with "ZERO earnest money deposit" under a standard "Louisiana Purchase and Sales Agreement".  It has been past my 15 days due diligence, and it is on the 19th day. I have told the seller on day 19th, that I want to back out of the contract. The seller insist that he will sue me and get with an attorney and will proceed with his actions on his end. He insisted that i move on and proceed with closing on his home or he will take actions.

QUESTION: What are my requirements to close on this home? And what are the options that I have to get out of this?

I have walk with several experience investors but they told me that it is too expensive to fix. Could be in the range of 30-40K, much more than i anticipated because it requires structural renovations as well. The area home sold for that is only around 45-55K comparables, and it was under contract for 18K. At first walking the home, i believe it to be only cosmetic, paint, flooring, cabinets. But it looks like there will be structural roof suppport, drainage, and insulation, and rotting.  So I told the seller I want to back out on day 19th. But He insisted that i told him too late and by the contract, I was suppose to inform him before the 15th day. 

What options do I have? Should I be overly concern? I sure as heck don't have the money to do a 40K renovations, plus going over the price of what is it actually worth. I thought the renovation would only be in the 20K Max. 

Thanks

[Cassi Justiz]

I would consult an attorney. :) If the seller is threatening to sue, it's probably time to get your own attorney on board. 

A lot of sales contracts will have a specific performance clause where they can technically sue you to close on the property. Now, whether the seller and their attorney will feel that it's worth the time and money to pursue is another story. 

Even just paying an attorney a few hundred dollars to review your contract would be worthwhile. They may find something in there that could make it non-enforceable. 

[Braden Smith]

Hi @Sinh T Tsang. I am both an investor and a licensed realtor in New Orleans. If you are past the inspection period window you are now locked into that contract. The inspection period is the timeframe you have to conduct any and all inspections, and then cancel the contract if needed. If you had a 15 day inspection period you should have done all your due diligence during this time period. Typically the only other contingencies a buyer would have with the standard Louisiana Residential Agreement to Buy or Sell provided by the Louisiana Real Estate Commission is for financing and appraisal, but if you have a contract that is a cash purchase with an as is sale, then you have no other options to get out of the contract.

See lines 197-200 on the contract:  

"FAILURE TO GIVE WRITTEN NOTICE OF EITHER TERMINATION OR DEFICIENCIES AND DESIRED REMEDIES TO THE SELLER (OR THE SELLER’S DESIGNATED AGENT) AS SET FORTH IN LINES 161 THROUGH 180 WITHIN THE INSPECTION AND DUE DILIGENCE PERIOD SHALL BE DEEMED AS ACCEPTANCE BY THE BUYER OF THE PROPERTY'S CURRENT CONDITION."

The contract should already be at a title attorney's office that will conduct the closing so I suggest you speak with the attorney about this matter. From the sound of it, you are in a situation where the seller can and will sue you. 

See lines 268-276 on page 7 of the state contract:

"DEFAULT OF AGREEMENT BY BUYER: In the event of any default of this Agreement by the BUYER, the SELLER shall have at the SELLER’S option the right to declare this Agreement null and void with no further demand, or to demand and sue for any of the following: 1) Termination of this Agreement; 2) Specific performance; 3) Termination of this Agreement and an amount equal to 10% of the Sale Price as stipulated damages. Further, the SELLER shall be entitled to retain the Deposit. The prevailing party to any litigation brought to enforce any provision of this Agreement shall be awarded their attorney fees and costs. The BUYER may also be liable for Broker fees."

At this stage, you need to consult an attorney, as the seller is within his rights to sue. The seller can let you out of the contract if they choose to do so, but it doesn't sound like that is something they are going to do. You may be able to offer them some cash to let you out of the contract, and that may be far cheaper than dealing with a lawsuit. 

[Sinh T Tsang]

Thank you. I am new to flipping and only have done cosmetics like painting and flooring. So this was way out of my head to begin with until I was advised by other investors on the huge renovations that is underlying. I had just wanted to negotiate the lower price possible first and put it under contract. I guess bad experiences make you learn hard. I will come up with the money now. I am also speaking with the seller to see if we can compromise with an agree amount that he would be willing to void/null the contract. If he so agrees on a price that I pay for getting out of this, how so should I approach on legalizing it between us to show that he has accepted a different solution to null the contract?

Thanks,

Sinh

[Braden Smith]

You will both need to sign an official cancellation of the agreement. Involve an attorney to ensure your bases are covered. 

[Jay Hinrichs]

Originally posted by @Braden Smith:

You will both need to sign an official cancellation of the agreement. Involve an attorney to ensure your bases are covered.

sabor rattling..  i bet the guy settles for a few grand.. or the 10% clause.. 

[Phil Wells]

Speak to an attorney. 

If you're working with a real estate agent they might have some idea how to exit the contract based on experience and this might help steer you in the right direction but they are not lawyers and cannot advise.

I would suggest bringing on someone with a skillset to compliment your own for future flips. Do you have any friends that are contractors or tradesmen, etc? Bring them into the deal, make them a partner in the deal and learn everything you can from them. Maybe consider partnering with your experienced investor friends too.

I really hope it works out for you!

[Sinh T Tsang]

@Jay Hinrichs, i am in talks and negotiation of paying him some fees to back out of the contract. 

Before I put the agreement undercontract, I did do some research on the owner. He has a criminal record under his belt in the last 6 months and may still be under bail. It is a very high reason to push forward the sell. But in any effort, this is not the topic.

@Phil Wells , I am attending a real estate bigger pocket local meetup tonight to see if any cash buyer wants to take it for $18,000 from me. I am not looking to profit. So hopefully I will find someone that has the money, time, and experience to tackle this and may built a relationship to do future partnerships.

Wish me well. I did get with an attorney- and they did explain to me of everything above in this post that was explained. So I only have four options- go through with it at $18,000, find an investor with experience that wants it for rental, Negotiate with a price to backout of a contract to pay the seller for lost of time and opportunities, or wait until he sues me (which I prefer not to get sue by any means- as the result to be ending results -based on the contract terminology would mean I would still have to buy it, and then I would end up paying some lawyer fees as well). 

The home has been vacant for a long time, as the a/c and heating doesn't work. Due to being winter time. His tenants moved out for several months already and he doesn't want to renovate the property or have the money to do it himself (i think). So, I will negotiate a month or two month of rent with him or 10% of the purchase price per the purchase agreement. I believe this is going to be an expensive lesson, but next time- even if my due diligence take a long time- I will write them an email and text saying to back out of the deal unless i have more time on the due-diligence instead of just waiting. 

Thanks,

Sinh

[Mitch Harold]

Would redhibition be an option?

[Jeff Filali]

What the gurus don’t tell you... 😉

[Joe Splitrock]

You signed a contract. Either follow through or negotiate a termination. 

[Sinh T Tsang]

All, I would like to update you all on the status. I ended up not answering the guy's text, and then told him I would offer a fair amount of 1 month lease to get out of the contract, and left it at that. Several days later, he responded back to the text and taken 700$. We met up and signed an agreement on the spot, handed him a check. I guess he did his homework and realized it was too much to sue me..Then finally agreed to take some compensation and signed an addendum to get out of a contract.

Thanks,

Sinh

[Brittany R.]

Congrats! Well sort of...anyways a lesson learned. 
Keep trying, and you’ll succeed eventually.