Saturday, February 07, 2009

What happens if a buyer does not close on a real estate sale?

This is a common question that I receive from sellers that I deal with, such as "what happens in the event when the purchaser does not have the funds upon closing and will not have the funds, regardless of any extensions"
Please understand that I am not a lawyer and cannot give legal advice to this question, this is a question for a lawyer to answer in full. I can shed some light on my experiences and teachings with such matters.
If the purchaser does not close on a sale on the agreed upon date, then it's incumbent upon the seller to put the property back on the market and try and resell at the best price and terms. In law, it's called, you have to "mitigate your damages". This means that you, the seller, has to try and reduce any potential loss you may incur when you resell. If there is a shortfall from the second sale compared to the first and you may incur extra costs, the seller would go after the first buyer for costs and additional out of pocket expenses.
Then there is the issue of the deposit that my real estate company is holding in trust for the buyer. It remains in our real estate trust account until one of the following occurs.
My teaching and experience regarding closings that fail is that there are 3 'typical' methods that a deposit comes out of trust.
  1. If there is a successful sale
  2. if there is a mutual release and
  3. if there is a court order
There are others, but these are the main methods. Thus, if you sale does not close, you attempt to resell, any loss you incur you will attempt to go after the money in trust and attempt to negotiate with the first buyer to cover these costs.
On the mutual release you and the original buyer would agree to an amount of the deposit that comes to you and an amount that goes back to the buyer. If you cannot agree on the terms of the mutual release, you would have to go to court and sue the buyer for what is called 'specific performance' since the buyer did not consummate the sale.
Again, I am not a lawyer and you should ask your lawyer to further clarify what happens if a sale does not close.
Thankfully, this situation of a buyer not closing does not happen too frequently in real estate so we don't have to deal with it too often.
I've been in the real estate business for just over 21 years and this has never happened to any of my sales over the course of my career in real estate.
Thank you,
Mark

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