Cancelling a Contract?

Question

He is NOT my client, just a family member. I'll call him John. John and his (pregnant) wife are downsizing (from Belton, MO) and were trying to buy a smaller home in Kansas City, Kansas. They are set to close on January 9th and they are through almost all contingencies (selling their current home, inspection/resolution). I believe the last contingency would be financing, but unless the house doesn’t appraise for at least the purchase price, this contingency will be satisfied as well.

Long story short, they are now trying to get out of this house. A couple days ago John was out at the new house, and briefly parked in the neighbor’s driveway. John says at that point the neighbor came out and immediately pulled a gun on him. They are starting a family and are now very scared about this neighborhood and their immediate neighbors. Bottom line, I think they just now realized that this is the kind of neighborhood where you need to be a gun owner – and they are NOT gun people, so you can imagine how scary this was for them.

What options, if any, does John have at this point? His realtor immediately reached out to the seller’s agent, who responded and said that the sellers are not willing to sign off on a cancellation. I guess the sellers have already fixed the roof of the home, which John and his wife had requested (I believe the roof cost was $5k).

Purchase Price: $99,500 Down payment: $18,900 Earnest money: $1,000 Financing: $79,600

Are there any options for John at this point? He’s willing to lose the earnest money and probably even the cost of repairs. Any ideas or insight you might have would be extremely helpful.

Mike Cumbie · Answer

@Keena Dean

Reason 1 to never allow a buyer back on the property after the inspection and before final walk through. This time it was a neighbor with a gun, next time it is they didn't notice how small the one room was and the time after, they never realized how much they really wanted a pool. Next time the furnace just looks odd and has a funny smell.

Point 2, don't go on other peoples property without permission. There are feuds going on in every class of neighborhood over "Carl's leaves landing on my property". Parking your car on property that belongs to someone else (and you do not know each other) usually results in an argument at least. While it sounds like they dodged a bullet by finding out about that specific neighbor in advance, I don't think I would say the neighborhood is a place one has to own a gun.

All that being said: (DISCLAIMER: I do not know your contracts and am just some dolt rambling :) If he is willing to give up his $1000 the answer to what can he do is.... nothing.... do nothing.... sign nothing more. While I am sure there are cases where someone could sue to try and force it etc, the seller would really need to push quite a bit to try and get something out of it. For a house at the 99K range they must really want to sue over principal.

Good Luck!

Ned Carey · Answer

@Keena Dean

Well what does the contract say about defaults? There is probably a clause titled "Defaults and Remedies" In my area contracts typically say if the buyer defaults the seller's sole recourse is to keep the EMD as liquidated damages.  Depending on the language, the buyer may be able walk and  only suffer the consequence of losing the deposit.

The key is almost all of these types of questions is "What does the contract say?"

John Thedford · Answer

@Mike Cumbie

"dodged a bullet" LOL.

Patrick Franta · Answer

Keena,

The Buyer should be able to use the financing contingency to get out of the contract with their EM deposit.  A loan can not be approved for a whole host of reasons.  If they can get their lender to write a loan denial letter that would be their out.  If the Sellers don't agree to the cancellation then they can't proceed with seller their house to someone else so it is in their best interest.  I hope this helps.

Greg Gaudet · Answer

For a $1,000 deposit I'd just walk away lol That's about as small of an EMD as you could ever get away with!

But I would say read your PC very carefully.. In Hawaii the contract typically says something along the lines of "conventional financing at prevailing rates acceptable to buyer", which can easily be argued that the buyer can cancel if they do not find the rates/financing offer acceptable. It's pretty open ended here. Maybe your states contract is similar?

Keena Dean · Answer

Thank you to those who responded.  John has a good realtor working with him, and I've given him lots of other ideas to think about.  It's in his hands and court now.  Thanks again everyone.

Kim Tucker · Answer

Um, spend a few $100 and consult with a real estate attorney on your options as right now we are just speculating.

With 20 years of experience in KC, I am guessing that seller would probably do nothing and accept the EMD as liquidated damages, I have not read our 40-page contract of late, so not sure.  The seller could sue for liquidated damages, or maybe the attorney would advice negotiating a buy out of the contract as in we will double our EMD that the seller gets to keep to back out.There is a way out legally.

or buy it and relist it for sale, although they might lose a lot more money than the attorney would coust.

Keena Dean · Answer

If the buyer defaults the seller can:

a.  Specifically enforce this Contract and recover damages suffered by SELLER as a result of the delay in the sale of the Property.

b.  Terminate this Contract by written notice to BUYER and, at SELLER’S option, either retain the Earnest Money as liquidated damages as SELLER’S sole remedy (the parties recognizing that it would be extremely difficult to ascertain the extent of actual damages caused by BUYER’S breach, and that the Earnest Money represents as fair an approximation of such actual damages as the parties can now determine) as provided in this Contract, or pursue any other remedy and damages available at law or in equity.

Keena Dean · Answer

Thanks Greg.  They are fine losing their earnest money - they just want out at this point.  The problem in Kansas is that the buyers cannot just walk away.  Both parties must agree to cancel the contract, and at this time, the sellers are unwilling to do so.  They could just not show up to the closing table -- but then the sellers always have the option of taking them to court and sue for specific performance.

The language for the loan approval in the contract basically just says the buyer has to make a good faith effort to obtain the loan commitment within 45 days of the contract or 5 days before losing, whichever is earlier. If buyer cannot obtain the loan, the contract can be voided.

Right now there isn't any reason why they wouldn't be approved for a loan. So at this point I'm just trying to get some out of the box ideas or loopholes here. Right now we're all kind of holding our breath and thinking that this is going to end up resting on the shoulders of the appraisal; hoping the home is not worth what they have offered.

Cancelling a Contract?

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