What seller can do if buyer backs out due to poor credit

MAILBAG

July 16, 2000

Dear Mr. Azrael:

In February, a buyer offered me a contract on my home, which I accepted. I agreed to pay the buyer's closing costs and to vacate my home by the settlement date on March 31.

I was given a pre-qualification letter from the mortgage company and told the buyers were putting down $30,000. The buyers' agent and my agent were from the same real estate office.

I moved out of my home on March 27. On March 28, my agent learned from the title company that the loan officer had canceled the settlement. My agent tried numerous times to contact the loan officer, who never responded, and the buyers' agent, who knew nothing about the canceled settlement. Two days later, my agent learned that the buyers had a previous $10,000 judgment against them, which precluded them from getting a loan.

My agent found another loan company willing to give the buyers a loan at a higher rate, but the buyers could not be contacted.

The buyers contacted the agents to get their $500 deposit back, but I have not returned it. I cannot sell my house while there is a contract on it, and the buyer will not sign off until I return his deposit.

With no other options, I had to move back into my home on March 31, incurring double moving expenses. I've contacted the real estate mediation commission to intercede, but the buyer does not respond to letters or phone calls. Thank you so much for any help you can render me.

Sandra Geddings Baltimore

Dear Ms. Geddings:

Since the buyers have asked for a return of their deposit, it's clear that they are not going to purchase your home. Therefore, I suggest you put it back on the market, even though there has been no formal release of the original contract.

The buyers appear to be claiming that they have no obligation to purchase your home because they were unable to get financing. The sales contract probably has a "financing contingency" provision. You need to read this provision carefully to see if the buyers have complied with all of their duties. For example, some contracts provide that the financing contingency is waived if the buyer does not notify the seller within a set time of the buyer's inability to obtain a mortgage commitment.

You state that the buyer had a pre-qualification letter. Usually, this letter merely means that a loan company has looked at the buyer's credit report and obtained basic financial information and that if everything stated turns out to be true, the buyer should qualify for a loan in a certain amount. A pre-qualification letter is not a mortgage commitment.

It's curious that the judgment against this buyer was not disclosed in the credit report. If it had been noted there, the loan officer should have known it would have to be cleared up before a mortgage commitment could be issued. Perhaps the judgment problem could have been resolved. Without further investigation, there is not enough information.

If you want to find out whether you have a valid claim against the buyers, you should consult an attorney, who can review the contract of sale and investigate the facts. On the other hand, you may not want to spend time, effort and money trying to hold the buyers responsible for your loss, especially if they have poor credit.

What can sellers do to protect themselves from this situation?

Your agent could ask the buyers to provide a signed financial statement, stating their assets, liabilities and income. If there were a judgment against the buyers, they should know about it and list it as a liability. Also, you can insist on a larger deposit. In your case, the buyers have only $500 at risk as a deposit. If the deposit were $2,500 or more, the buyers might have more interest in resolving the judgment issue and completing settlement.

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