Broke Seller Wants Out
Anyone have experience with a seller trying to get out of a sale at the tail end? We’re trying to schedule closing and the seller is trying to get out of it. They actually don’t have enough money to close, because they are in more of a financial pickle than we had any idea of….
Anyone have experience with a seller trying to get out of a sale at the tail end?
We’re trying to schedule closing and the seller is trying to get out of it. They actually don’t have enough money to close, because they are in more of a financial pickle than we had any idea of. (We had no idea there was any pickle.) They owe the bank approximately what we’re in contract for, which leaves nothing for transfer taxes and their real estate agent.
We’re loathe to walk away since that would mean eating what we’ve spent on lawyers and mortgage applications, not to mention lost time going back with inspectors and whatnot.
Any ideas? Our lawyer is great, but he’s basically saying that we can try to force them to perform per the contract but it will drag out, because they don’t have the money.
I’ve gotten a lot of advice from neighbors, too, to the effect of “I bailed my uncle out and he just kept believing that the miracle bailout fairy would be back.”
The reason to walk away would be to cut our losses, but at this point, suing to force the sale is looking to cost almost what starting over would cost, and that is if you don’t count the time we spent with inspectors, etc.
Plus, our rent is pretty cheap (our landlord was a little bummed to learn we’re not giving notice on Friday, he’s looking forward to renovating our apartment) and so if we pay rent for six months before we shift gears and start paying a mortgage, we’re potentially better off.
Seriously, thanks for the supportive comments.
Not having sufficient funds to pay off their current lender is happening all over the country. Everywhere people still owe money on a house they’ve just sold and will still be making mortgage payments on it for many years. That’s the case with my Aunt (on my mother’s side, the side of the family without financial sense) who bought a house planning to move to another state then changed her mind and had to sell it at a loss.
The best thing these sellers can do is renegotiate the interest with the banks on the remaining money they’ll owe and that’s what they should be intensely focused on. Not wasting time trying to void a contract risking a lawsuit so they can sell their house for some unrealistic amount they’ll never get.
If you ever get to buy this house it will only be after these sellers finally accept they’re stuck with some debt on the property and there’s no miracle bailout. Slopefarm’s advice is good. Put a lis pendens on the house to either get the sellers to see the light or get back your money you’ve spent.
Agree with LBOL. I hate to be hardball about this, and there is a lot you can try to do in a reasonable way that you and your attorney already know about, but it sounds like you ultimately need them to freak out more about the consequences of not closing than the consequences of closing. They need to see closing with you or buying you out as the least bad of a bunch of bad options and that not closing and wishing you will cut them a break or just walk away is not on the table.
Don’t sweat not looking up seller’s loan situation. They should have known when they accepted your offer that they would be in this boat. All the basis numbers were set then — payoffs, purchase price, closing costs. None of this should be a surprise to them now. They chose to go forward and sign a contract with you, which means they made the commitment to close on the agreed terms, regardless of their circumstances. If they had to come up with some money to make it work, they were responsible for knowing that when they signed.
You can always settle a lawsuit. Just because you file doesn’t mean you have to take it to the end. But the lis pendens will put you more firmly in the drivers seat to bring this to some kind of a conclusion. If you file, have your lawyer stay in contact with seller’s lawyer, with comments along the lines of “my client needs to do this to protect their rights, but we are open to resolving this in the following ways . . . ”
Good luck, however you pursue this. Unfortunately, we’ve been there, too.
“We’re happy to go to the bank with them, but they still won’t have anything left, which is what they’re really freaking out about. ”
Are you saying the holdup is the amount of profit (or lack thereof) the seller’s will experience, or that they won’t have sufficient funds to payoff their current lender?
If it’s the latter, there is no simple solution. If it’s the former you need to at least take steps to trigger their default by giving them a time is of the essence letter for closing. Getting the broker to invest in getting the deal closed seems like an obvious place to start. Getting the bank involved is worth a shot but hardly a sure thing and will likely involve considerable delay.
I want to thank you for sharing this situation, serpentor. I am learning a lot from this thread. I probably would have looked at the series of mortgages and assumed that the seller was *more* motivated, not less.
I wish you the best of luck. It sounds like you’re basically keeping a cool head, which is important. When I was buying my house, the whole time I was in contract I was a wreck, hoping nothing bad happened. It’s obviously an emotional situation for everyone.
We’re happy to go to the bank with them, but they still won’t have anything left, which is what they’re really freaking out about. We’re basically hoping they will come to their senses and realize that this is their best option, since we’re not letting go of our contract without compensation for what we’ve put into this, and they’re not going to get enough from another buyer (who is going to mysteriously bid higher in this market????) to buy us out and come out ahead. Hell, we might be able to find a place for less, but we found this place and ran the bases with it and now someone is standing at the plate faking us out and we’re getting mad.
Word to the wise: look up everything you can. I didn’t notice it until this all started to come unraveled but P-shark shows the sellers taking out a series of mortgages, each with a higher principal than the last. That should have been a clue that they’ve been on rocky financial straits for a while. I thought it was odd, is all I thought.
Agreed, do bring the seller’s bank in on it. My family owns small private banks in small rural towns and they absolutely are open to working something out instead of having another foreclosure on the books and a house sitting there they can’t sell. These banks of ours had very few foreclosures because they don’t make loans to unqualified people. (Quite a concept, isn’t it). But on the few potential foreclosures the bank does have, they met with the property owners to work out a way for the payments to be made or a sale completed.
From the story, I’m assuming that a bank not only holds a current mortgage on the property. If the sellers can’t afford to sell the place it sounds like there’s a a lot of unpaid principle as well.
Prudential worked with a Connecticut couple I knew who were in a vaguely similar position. Their lawyer negotiated a quit-claim back to Prudential with something called a “deed in lieu of foreclosure”. Prudential negotiated a new mortgage separately with the buyer’s attorney. I guess it was a three-way closing day.
The deed in lieu kept a foreclosure off the bank’s books, as well as the seller’s credit report. IIRC, there was even a financial benefit to the buyer who saved on some closing fees by doing it this way.
I am curious about how bringing the bank into the negotiation would work. I hope a lawyer comes along to explain the possibilities.
It seems as if the best situation would be for the bank to take a small loss so that the seller’s closing costs could get paid. Beats foreclosure, right?
But if the bank doesn’t own that loan anymore or somesuch financial intricacy, then what incentive does the bank have to play along?
Interesting.