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 Protecting Yourself From Seller Backout

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John J. Merchant, JD - Mr. Merchant is a Commercial RE Broker and owner of Prosperitas Financial Services. He has been buying and selling real estate and paper of all kinds for lots of years.

 Seller Backout, What To Do?
Protecting Yourself from Seller’s Backout As everybody who’s dealt in RE for a while knows, it’s not at all uncommon for a Seller to change his/her/their mind. Although the Purchase and Sale Agreement was signed days or weeks ago, and maybe you, the Purchaser, paid an “earnest money” into escrow to demonstrate your good faith, and maybe have more money in the deal in the form of property inspections, escrow fees, etc., now you get a message from the Seller that the deal’s off, they’re backing out-reneging on the contract!

So, what, if anything, can you do to protect your rights as Purchaser?

After all, Seller still has title, and (maybe) your earnest money check is on its way back to you, so, as far as this deal goes, you’re legally and practically dead-right?

Can’t seller immediately proceed to sell to Buyer B, instead of you? When Buyer B’s offer for more purchase money came into Seller just after you and Seller had both signed off on your agreement?

Well, no, Seller really has no right to just tear up and trash your deal, if your deal’s got those basic and necessary elements of a contract: offer, acceptance and legal consideration.

This being true, is there anything you as the lawful Buyer-to-be can do to protect your rights and prevent the property from being sold by Seller to his bigger buyer who came in after you did?

You betcha! While you can’t just twist Seller’s arm(s) and make them sign the Deed over to you, you do have the tools at hand to kill the B deal deader than a doornail, and paralyze Seller’s doing anything with the property until your deals’ all cleared up.

If Deal B is presented to the same title/escrow company, that company is not, of course, going to willingly and knowingly just allow it to go through while your deal is just trashed. This act, should they allow it, would put them at risk, liability wise, and I’ll guarantee they’ll want no part of it…unless you were to sign a release to them, which you’re not going to do. Right? Right!

You should realize that mostly these are FSBO property deals, where Seller is not represented by any agent or RE company, and Seller doesn’t have the benefit of an Agent’s telling him he can’t/shouldn’t be doing that. While it is sadly true that far too many RE Agents don’t know enough to be effective in preventing their Seller clients from this kind of “double-dealing”, their Brokers for the most part DO know better and won’t tolerate Seller’s chicanery.

However I’ve seen cases where the Agent or her Broker were in fact, the instigating trouble makers in trying to kill Deal A and allow Deal B, which would make them a bigger commission, to go through. So don’t think just because the property was/is listed with a RE Company, it can’t happen to you.

OK, so how, now, brown cow, are we gonna stop this malarkey from proceeding to your peril and loss?

Well, although a nasty letter from your lawyer might be effective, I wouldn’t count on it, as the Seller’s lawyer works for Seller, and as soon as Seller were to get your lawyer’s letter, Seller would be having his lawyer respond that his client has every right, etc. Although Seller’s lawyer might know better, remember, he works for Seller, and if he/she can intimidate your lawyer, or you, that’s all that lawyer needs to do, and he’s done a good job representing Seller.

OK, you say, if my lawyer’s letter isn’t guaranteed to stop it, how could I stop it?

Very easily. How? By preparing and recording, in that county’s Deed Records, a simple document that will tell the world, legally, and title-wise, that you have certain rights in and to that property that, unless released by you, give you the first right to purchase that RE, and anybody interested may contact you at XYZ Address.

In some cooperative states, this is a very simple matter, allowing for a simple document that can be prepared, signed and acknowleged and quickly recorded. In other states, unfortunately, such as CA, this is not so simple…but is still possible through a more round-about procedure. I’ve personally been through this in CA and know it’s possible, although the CCC’s (CA Civil Code) doesn’t spell it out.*

Now, with such a document on record in the Deed Records of that County, no title company is going to clear title of Seller, and is going to insist that the recorded document, and the legal/equitable interests represented by same, be fully and completely released before clearing Seller’s title or allowing Seller to sell to anybody but but you.

So, should some double-dealing crook of a Seller try to undercut your rights on that Deal-of –a-lifetime, remember that you’re not powerless and you do have some weapons in your arsenal that he’s not going to like.

Brokers and Agents can likewise protect their own financial interests from being trampled underfoot. A back-slithering Seller can cost them some dollars too. Someimes, in BIG deals, BIG commissions are at stake. Remmber an Agent or Broker’s rights are built into the Purchase and Sale Agreement just as the Seller’s and Buyer’s rights are.

In fact a local Broker friend of mine was bemoaning the fact of just this kind of deal one day awhile back, and after I educated him a little bit, he was able to recoup his own lost commission from a killed sale, and was in fact paid to “release and disappear”

*(For any reader interested in more information, I do have some forms available that I’d furnish for small cost, so contact me if interested.)

 Author: John Merchant
Prosperitas Financial Services, MesaRoya Properties, A Commercial Real Estate Broker, 2522 N. Proctor #222, Tacoma WA 98406, (253) 503-3886, efax (253) 503-3887

Posted: 2/12/2003 11:43:39 AM

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