Dear Sue,
After several months of being on the market, our house finally sold. The offer seemed reasonable, and we were eager to sell so we accepted it.
The 60-day escrow gave us plenty of time to find the right rental and get our children enrolled in their new school.
We packed up most of our belongings in boxes and stored them in the garage. We were ready for moving day.
On the day we were suppose to close, our real estate agent called and said that the buyers’ loan fell through and escrow was being cancelled.
When I asked if we were getting the buyers’ ernest money deposit to at least cover the rental fees, he said no.
He explained to us that the buyer checked the box that said that the loan contingency will remain in place until the loan is funded.
We can’t believe it! We thought that all of the contingencies were removed within the first 17 days of our escrow.
It’s not right. In addition to losing our deposit, we have to unpack and get our house back to show ready.
Is there anything we can do about it?
~ Livid Larry
Dear Larry,
I am so sorry that your sale fell through.
It’s not uncommon for sellers to not fully understand the contracts that they agree to sign. There is so much information to take in all at once.
I suggest that you review your contract. Look closely at page two of the California Residential Purchase Agreement.
Section H, item 3; Loan Contingency Removal:
(i) Within 17 days (or however many days specified) after acceptance, buyer shall, in writing, remove the loan contingency or cancel the agreement.
OR (ii) (if checked) The loan contingency shall remain in effect until the designated loans are funded.
If the box on line ii is checked, the buyers’ loan contingency remains in effect until the loan is funded (or not in your case).
That means that your purchase agreement contained a contingency up until the day your escrow was due to close and you probably don’t have a legal leg to stand on. You would need to speak to a real estate attorney to know for sure.
Some sellers knowingly accept the loan contingency, but as one can see it can be very risky. The unpredictability of today’s lending environment is forcing buyers into wanting the extra protection.
If a buyer refuses to make an offer without the loan contingency being in place, a seller can be protected by adding an addendum that reads “Seller to remain in possession of the property for up to 10 (or any number of days) after close of escrow at a cost or no cost to seller”
This addendum reduces the sellers risk by giving ample time to relocate. It creates a degree of certainty for the seller because they don’t have to move until after the escrow is closed.
Another option would be to give the buyer a specific number of days to remove the loan contingency.
I like this option because the contingency period isn’t left open ended as your’s was. If the buyer can’t perform within the allotted time frame, the seller can move on, extend the contingency period or have the contract revert to a contingency contract allowing the seller to entertain other offers. The seller won’t be left hanging.
In your case the contract was weighted toward the buyer. Using one of these strategies when you receive another offer can be a matter of good Home $$$s and Sense.
Sue Thompson is the owner of HomeTown Realtors in Auburn. She can be reached at seesue@mac.com, or on the Web at www.homedollarsandsense.com
