Buyer won't sign Mutual Release Agreement - okay to continue?

[Jeff Goldberg]

Hi BPers!

I live in OHIO I have a tough situation. I was in contract to sell my home to a buyer (#1).

During the contract period I was offered (from a previous potential buyer #2) much more to purchase my home.  Obviously I was already in contract and was going to honor that. However, the buyer (#1, with whom I was in contract) failed to provide proof of financing during the financing period.  Their agent was new and had never completed a deal before.  In fact, they only had a 15 day period from contract start to provide proof of funds.  Since they missed the clearly outlined period, my agent sent them notice that they had missed that deadline and that the contract was now invalid.  The buyers agent was scrambling and realized (after we told them) that the milestone had been missed.

In any case, my agent then sent the buyer (#1) a mutual release agreement which (from my understanding) basically says that no one has any obligations to anyone.  Now, of course, the buyer (#1) is refusing to sign it.  At this point, my agent tells me that we can't continue with the second buyer (#2) since we don't have a signed Mutual Release agreement.  The 'backup' buyer (#2) still has interest and knows that we are waiting for the first buyer (#1) to sign the agreement.

I can't imagine that I have to wait around for the #1 buyer to sign the agreement.  I'm wondering if I can just continue with buyer #2 EVEN if I don't get the signed Mutual Release agreement from buyer #1. 

Has anyone been in this position before and have any suggestions?  I AM going to be taking this up with an attorney, but since it's the weekend, I'd just like to have a take on this by someone that's been through this before.

Thanks

Jeff