Done house sales come undone

July 26, 1992|By J. Linn Allen | J. Linn Allen,Chicago Tribune

CHICAGO -- When Stephen and Joan Hatteberg say they were ripped off, it's not some vague accusation.

The Hattebergs were victimized when a real estate agent acting for the seller of an Aurora, Ill., home they were buying literally ripped the seller's signature off the contract.

That killed the deal and the seller was free to accept a better offer, the Hattebergs were told.

Horsefeathers, said the Hattebergs, who were moving to the area from Denver and couldn't spare any more time looking for a house.

Armed with a lawyer and their own, unmutilated copy of the contract, they threatened to take the agent and the seller to court, and a few weeks later forced the sale of the house for the $103,000 they had offered.

They ended up paying $860 in attorney's fees and weren't pleased. "As far as real estate and ethics are concerned, I should have stayed in Colorado," said Stephen Hatteberg.

Friends in the real estate business back in Denver can hardly believe their story, the Hattebergs said.

"I was just in awe when it happened," said Joan Hatteberg. "What good is a contract if you can just tear a hole in the signatures and say it's voided?"

The rip-it-up gall of the seller's agent, who worked for a prominent real estate firm, was truly awesome, though under state law she was not culpable because she was acting at the direction of the seller.

But the case is not isolated. Attempts by participants in home purchase deals to break contracts after they're signed are becoming more frequent, according to industry observers.

"We live in an age when ballplayers don't honor their contracts, and everyone wants to renegotiate," said Chicago attorney Harold Levine, who writes and lectures on real estate issues. "In another era, people would say they would be bound by the contract."

No hard figures are available on how many signed contracts break down before closing, though estimates by some in the industry are as high as 15 percent. That includes those that fall through because the buyer can't get a mortgage on the agreed-on terms, perhaps the most common deal-wrecker.

Christopher Eigel, executive vice president of the real estate firm of Koenig & Strey, said that in his experience, somewhere between 5 to 10 percent of signed deals break down. "In the last 10 years that's gone from well under 5 percent," he added.

Deals undone because either buyer or seller simply decides to renege on a contract may still be comparatively few, but the experience can be infuriating to those victimized.

Greed can be the motivating factor. A seller (or real estate agent looking for a higher commission) can be swayed by a better offer. A buyer can decide to use the home inspection provision in the contract as an excuse to ask for a new electrical system, or maybe get out of the deal.

Buyer's remorse is a well-known phenomenon that could lead to a deal's undoing. A lesser-known syndrome is seller's remorse.

"When people live in a house for 10 or 15 years, they realize they're selling a piece of themselves rather than a piece of property," said Ruth Pearson, senior vice president of Koenig & Strey and manager of its Gold Coast office in Chicago. "Sometimes they deliberately set out to bust the deal."

In many of today's real estate transactions, aspiring deal-busters don't have to resort to cutting contracts into paper dolls. They need only look as far as a provision included in or attached to contracts called the attorney approval rider.

In the typical rider, both parties agree that their attorneys have a certain period of time, generally not more than five days, to look over a contract and accept or reject its terms except those relating to purchase price, closing date and possession date.

Attorneys and real estate brokers alike concede that this provision amounts to a de facto right for both parties to break the contract during the rider period.

"It doesn't specifically give . . . the right to rescind, but that's frequently how it's employed," said Koenig & Strey's Eigel.

"Human nature being what it is, people use these devices to get out," said Mr. Levine, who said he's rare among lawyers in decrying the riders. "Then the question is, when people decide they want to get out, what legalistic steps they take."

The steps could include sending out a host of objections or additions bound to be rejected by the other party, according to attorney Marshall Moltz, a former chairman of the real estate law committee of the Chicago Bar Association.

"Attorney approval is wonderful in general, and we're better off with than without it, but it's definitely a double-edged sword," said Mr. Moltz. "It can be used for good or not."

Another potential deal-breaker is the home inspection rider, which makes a contract conditional on a satisfactory home inspection. Such clauses, standard today but rare only a decade ago, can be a big loophole.

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