Seller trying to cancel contract after short sale was approved - HELP!

Hello,

I am new to this site and am looking for advice from experienced professionals.

I put a bid on a short sale in December 2009 in San Pedro, CA but was a backup offer.

In April 2010, the first in line walked away and I was able to up my offer and signed a contract (California Residential Purchase agreement and its multiple addendums).  We opened escrow end of April 2010 waiting for the Indymac approval that finally came on June 8th, 2010. 

At that point, we really started the escrow process, appraisal was done, inspection was done and we submitted and signed documents.  I got approved for my loan, got my down-payment ready and submitted all my paperwork in escrow.

The seller signed some documents and submitted some until June 17th, 2010 when he started to become unresponsive.

After a few days lost waiting for his paperwork due to canceled appointments with his agent, we found out that he had contacted escrow asking about the possibility to cancel escrow.  Also, I heard that he was now in the process of trying to do a loan modification with the bank that approved the short sale.

Can he really do that? 

We are under contract and why wouldn't he obligated to perform as per the contract is something that blows my mind. 

He had opted for having no further contingencies in the contract and told his agent to get rid of the property via short sale.

I am stunned that the same bank that just approved a short sale is talking to this person about a loan modification.

I really want this house and need this deal to go through to get my tax credit and access to home ownership.

What are my chances of success in that transaction?

Is there a way for me to force the seller to perform his obligations?

Please help!

Greg

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you can tried to take him to court, yet i believe it would be a waste of your time.
The seller is under no obligation to sell. You cannot force someone to sell their home, and I would bet that somewhere in the addenda that you signed it mentioned that the seller would be able to cancel the contract at any time without fees or penalties to them for doing so--this is lender required verbiage.

The person who is probably most at fault here is probably the listing agent for not properly qualifying the seller--they should have made sure that the seller really wanted to sell the home before signing the listing agreement.

Also, since this contract was signed in April, which was possibly AFTER the HAFA guidelines took affect, it could have been the bank that offered the HAMP/HAFA package to the seller. In order to qualify for HAFA, they have to go through HAMP (Home Affordable Modification Program).

Now, if the seller decided to do a loan mod because they never really wanted to sell and the listing agent did not fully disclose (for whatever reason) their options...well, there is still nothing you can do.

Sorry. Taking them to court would just be a waste of money as the courts would very likely side with the seller. Especially if the addenda that you signed stated something as mentioned earlier.
Hi Angela,

First of all, thank you for taking the time to comment on my post.

There is not such verbiage in the agreements. The only right to cancel the seller has, is in case I do not perform and after he sent me a notice the perform assuming that I still do not perform. He did not put any other contingencies. His agent wanted him to have such additional statements to give him an out but he refused and said he just wanted to get rid of the property via short sale.

All conditions of the contract on my part were fulfilled and I did not counter any conditions the seller or the bank approved in the short sale approval.

How is that not a pure and simple breach of contract? As such, why would the court side with the seller?

This is going to cost me about $20k!

Greg
I find it hard to believe that with the required short sale addenda and verbiage the lenders require, that none of that says that the seller cannot cancel at anytime. It is usually part of the short sale addenda...but since I do not have the docs you signed, I cannot say for sure.

You cannot force someone to sell. I do not understand how it will cost you $20k. With the canceling of the contract, you would be entitled to your full earnest money back. You are not required to pay for anything other than the appraisal and the inspection...

Again, you cannot force someone to sell their home.
The damages I face are indeed amounting to about $20k. While I may not be able to force him to complete the contract he entered, I will sue him for the damages. He will probably foreclose in a few weeks (no way he will manage to do a loan modification in his financial situation and what he owes versus current market prices) but by then, I will have a lien on the property.
I can't believe this is where I end up. I am decent person and this system favors deadbeats.
I am amazed that I am going to end up suing someone.
There is no such thing as a free ride though and this seller will have to face the consequences of his actions.

Thanks again.
You need to obtain competent legal counsel for advice, and you need to bring in every last shred of paper pertaining to your transaction. Ultimately, the attorney will need to review your paperwork, along with the approval letter from Indymac. Sorry that this doesn't help you this second, but it should be a first step. And before you go suing anyone, please read your contract to see if there is an arbitration/mediation clause. If there is, you may want to first proceed with that before stepping in a court of law (which will ultimately cost you a lot more than $20,000...) As for the agent being blameworthy, I do not agree. Agents cannot force anyone to tell the truth, and agents are neither detectives, nor telepathic. This seller was either entreated by the lender for a modification, or he is playing the system. It happened to me with one unscrupulous client who knew exactly what she was doing. Unless there are federal guidelines that specifically deal with this kind of fraud, it will continue. People are also desperate to keep a roof over their heads these days. Best of luck!
Tracey,

I agree with your advice and have prepared the file to have it reviewed by an attorney next week indeed.

I have requested mediation but the seller is not interested. Also, we suspect that he is in the process, in which case, I am told arbitration would not necessarily apply. If mediation and/or arbitration apply, I would be glad to go through these steps.

You are right on the agents, I think they did the best they could. The seller has been waiting for the short sale approval for 7 months and signed half the papers in escrow after we received short sale approval before he pulled out. I do not see how anyone could have seen that coming.

G
He may even be preparing for a bankruptcy, in which case you will be wasting even more money because he will have federal protections in place... I am sorry, Greg. At least you will have a modicum of satisfaction knowing that you did your best to resolve a very unfortunate situation. Again, I wish you the very best of luck.
Tr.
I think you need to speak with a lawyer. The likelihood of you successfully suing someone for damages is probably very, very low. I know that you cannot put a lien on a property that you do not own and have not done contractual work on. What liens do you plan on filing? Besides, most judges will look at this and say that this is a distressed property owner involved in a foreclosure/short sale, and if the lender gave them the option of loan mod to attempt to keep them in the home, they would likely side completely with the homeowner.

If you are in an escrow state and the seller reneges on the contract, the escrow would go back to you...so I believe that the only thing you could probably sue about is the escrow money, if you are in danger of losing it, but the costs of inspections, etc. would be invalid.

Definitely see a qualified real estate attorney in your area.

Good luck and please update!!
Angela,

Luck has it that the seller came to his senses and backed out of this attempts to cancel the sale. The short sale was reinstated and we should be closing next week.
It is a huge relief for me and the right decision for the buyer as well.
All in all, it is a good outcome.

G

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