Seller Breach of Sales Contract - Colorado - Options?

Question

Hello friends,

I'm hoping some of you more seasoned real estate experts can give me some advice for my current predicament. I'm currently under contract to buy another home that I was planning to use as my primary residence. The idea on this deal was that I would keep my current home (owned free and clear), and turn it into a rental income property.

Today was our scheduled inspection date on the new home, and the home inspector was already supposed to have had a radon test placed in the home over the holiday weekend. I received a call from my real estate agent this morning, telling me that the seller is trying to back out of the deal, and doesn't want to sell. Apparently he refused to allow the inspector into the home this weekend, and didn't want to allow the inspection today (our inspection objection deadline is tomorrow).

Needless to say, this is a frustrating situation in a fast-moving and hot market like Colorado. My wife and I are trying to weigh our options at the moment, but thought that some of you might have some advice on how things might go from here.

First, here's a little background on the seller: The seller is the original owner of this home, and he built it about twenty years ago. When I say he built it I mean to say that he did a lot of the hammer-and-nail building himself, and it looks like he did a fine job of it. From what I understand of his motivation, it sounds like the seller was married just a couple of years ago, and has a wife who wants him to move closer to town. Evidently he has been looking at homes since our contract was signed, and hasn't been impressed with any of the homes he has looked at thus far, and believes they are all "poorly built" compared to the home he has.

At the moment, here are the options we're weighing:

1) We sue him to force the sale through specific performance. I *think* we could still get the property this way, but it could create some real headaches for us. Our contract was already allowing for a free lease-back of the property, to give the owner 45 days to move after closing (our realtor suggested this as an option to make the terms more favorable for this guy's concerns about having time to move, and it was reportedly the only reason we won the contract over another offer that was also on the table when we presented ours). But, if this guy is living in the house we own after closing, and he's pissed that he had to sell it, I can only imagine how this might go badly for us.

2) We sue him for monetary damages for breach of contract. I don't know if this would go anywhere, but it would provide us some remedy for the many hours we've spent brokering this deal with him and our agent. We wouldn't get the house, but we might get something… if the courts even allow for this remedy on residential real estate transactions.

3) We simply walk away. We consider our time sunk in this deal, along with some of the small expenses we've thus far incurred, and ignore the loss of time that we've been away from the market and not looking for a substitute house. This is clearly the easiest option, but perhaps not the best. My wife believes that this guy wants to put the home back on the market to get a higher price, and I'm more inclined to believe the seller's story that he simply changed his mind (simply because he seemed sentimental about the place). It's really hard to judge his motivations, but I know my wife really doesn't prefer this option!

4) We re-write our contract. The seller's agent is pushing for this idea, suggesting that we add a contingency clause to allow him to find another home. Personally, I'm not inclined to re-write a contract that has already been signed simply because the seller (who is already waffling) wants to have us provide him with more favorable terms. My wife is even more vehemently opposed to this option. This option doesn't seem really viable to either of us. BUT, even with that said, if we decide to walk away without suing him, we could potentially float the idea of having him sign a contract that says he needs to sell the home to us at the currently agreed-upon price if he decides to sell the home in the next year/6 months, etc.

Again, I'm not entirely sure how well some of these options would work, and I'm just floating ideas to see if any of you can give me some guidance. I can only imagine that some of you have dealt with a seller breaching a contract before; I just don't know how you dealt with it! I've certainly never dealt with this, and my career real estate agent has also never experienced this problem.

Thanks in advance for the advice,

-Kevin

Travis Sperr · Answer

@Kevin H. Nothing fun about this one. My first thought is specific performance - but you raise the point that would be my thought too - he lives there for free, not wanting to move, what does he do to the property? Although you could mitigate that by having money held in escrow at title - but not sure he would agree to that given the situation.A lot of sellers are getting cold feet right now as they quickly are finding that it is difficult to be a buyer in this market.I would not terminate the existing contract to sign a "new contract" you lose all leverage if you terminate- hence why the listing agent is suggesting, you can amend the current contract to anything you want without going out of contract. He may just be testing you, why not pay a couple hundred bucks for a strong attorney letter threatening suit for specific performance if he backs out, his reaction may be different if you show you are serious.Lawsuits are not fun and because you plan to live in this property you have to decide how much stress you are will to take on before even taking ownership. I do believe it is all or none - go for the suit or walk away, but I wouldn't walk away without asking for money to terminate the contract for the time and energy you have into the deal.

Bill S. · Answer

@Kevin H. so this is my 2 cents. Say you get a first right of refusal, what are you going to do if in 9 months he says here you go? Are you going to wait on the sidelines while the year passes hoping he will have a change of heart? If not, are you going to be looking for another property? What if in 6 months he says, I'm ready and you have another house under contract? What then? I would rattle the lawyer saber like @Travis Sperr suggested. If he calls your bluff fold and move on. If you offer to terminate the contract, ask him to at least pay you for your out of pocket expenses (cancelled home inspections and radon tests). Maybe throw in some money for your agent and your time as well. If the wife wanted him to sell that might give her some leverage to get him "moving" again.

Matt Turbitt · Answer

Your Realtor needs to go talk to his/him. Attempting to work out a resolution but also explaining to him that the contract he signed is binding and if he breaches it he will end up losing the house, and alot of the proceeds from the sale (court fees, damages, your housing during litigation, your moving costs)

Kevin H. · Answer

Thank you both for your replies, and insight!At this point I'm considering the idea of cutting my loses, but with a bit of a caveat... What if I request that the seller signs a separate contract offering me the first right of refusal to buy this property at our currently negotiated price if he decides to sell it within the next year? If that's a viable option it would save on the headaches of a legal battle, but still protect my interest in the place in the event that the seller's plan was to simply turn around and sell it to some other person who has offered him more money (for all I know that might be the very reason that he wants out of this contract in the first place). I don't know if the seller would be inclined to sign this kind of contract, but he certainly might be more inclined to do so if he realizes that a lawsuit to request specific performance is my other legal alternative. While this next sentence might make me a decent human being and a crappy businessman, I have to say that I wouldn't feel particularly great about forcing the sale on this guy if he really, truly, just decided that he changed his mind and wanted to stay in the house that he built. If that's the case it's still a very irritating and unreasonable way for him to do business, and a clear breach of contract, but I can accept that reason without a lot of animosity. On the other hand, if he's actually trying to get out of my contract to go in search of a better deal, I want to be protected. That's the type of situation I'd be more than willing to litigate just on principle. I personally feel like negotiating a deal on a primary residence is a lot tougher than negotiating other deals. This house was this guy's home, and it was intended to be my home. There's a bit more than just money at stake in that kind of deal, for everyone involved.

Dan Mackin · Answer

Oh the fun you get to have!Thing is that you can't jump right to court with the seller. You would need to do mediation, arbitration and then litigation. I know the situation isn't fun, but are those all steps you are willing to take? How set are you on this new place. Most of the time stubbornness is the only reason people consider attempting litigation. Option 1 seems like a massive hassle, which you've already laid out. Option 2 is just adding more hours to your log. Option 3 is the most likely to happen and will just allow you to move forward. The state set up the 3 step process for contract disagreements for a reason. It helps people determine whether it's really worth going through the whole tedium and cost of all 3 steps. 99% of the time, it's not.