Legal Issues When Your Home's Buyer Backs Out Of Escrow
When the home you're selling goes into escrow, you have a reasonable expectation for the completion of the sale. Sometimes, buyers have second thoughts and may try to back out of the deal. This action can be a burden for you. You've likely invested time and money into selling your home and finding a new living space.
You have certain legal rights to complete the deal or receive compensation. However, the buyer also has rights. Here is more information about the legal issues involved in a buyer backing out of escrow and what actions you are entitled to take.
Why Would a Buyer Back Out of Escrow?
Buyers back out of escrow for many reasons. Some buyers walk away from the deal because they change their minds. They may determine that the home is too expensive for them or find another home they like better. Other buyers back out of the deal because they can't sell their old home or can't get financing. Buyers may also back out if there are unforeseen circumstances beyond their control, like damage to the home from storms or fire.
When Can a Buyer Back Out Without Consequences?
Buyers usually have a period of time after entering escrow called a contingency period. Contingencies are provisions in the contract that put conditions on the sale. During this time, the buyer will have the home inspected and get their financing together. You may agree to other contingencies in your contract. Buyers can usually back out without consequences during this period, especially if the contingencies are not met. State laws regulate contingency periods.
What Can the Seller Do to Limit Losses?
If the buyer backs out after they sign off on all contingencies, you have legal rights to compensation. You can legally force the buyer to complete the contract. You will need a lawyer for this process. You may be entitled to receive some or all of the earnest money deposit. Earnest money is typically 1% to 3% of the purchase price of the home. Most buyers don't want to lose that much money and will try to work things out with you instead. If your losses are few, you can talk to your real estate agent about relisting.
If you are using a real estate agent, then he or she can help you with some of these issues. The agent may be able to remedy the situation and mitigate the losses. However, if you feel the buyer backed out inappropriately, you can take legal action. A real estate attorney can spell out what you can legally do to complete the contract or get compensation. Contact a real estate law firm in your area to learn more.