Can a Home Sale Binding Contract Be Broken?

by Carol Luther, Demand Media
    Buyers who can't get financing might break real estate contracts.

    Buyers who can't get financing might break real estate contracts.

    When the buyer and seller of a home draft a contract, both insert terms or conditions to make the contract acceptable. The most commonly used clauses, such as the closing date, availability of financing and results of inspections, are escape options. In other words, they're put in by both sides to use as an excuse to break the deal if something goes wrong. Your state laws determine if you have any additional options when one party tries to break a contract for reasons not covered by the written contract.

    Buyer Financing

    Buyers and their real estate agents often include a condition in purchase contracts that will let the buyer out of the contract if he can’t get mortgage financing. There are situations where the seller might supply financing to keep the deal afloat. However, if that doesn't happen, and the buyer can’t qualify for a mortgage, he can usually cancel his purchase offer without penalty.

    Inspections

    It's your responsibility and your right to have a professional inspection done of any property you're buying. That pro could find defects your untrained eye will miss. That could even lead to a renegotiation of the purchase price (if your contract contains such a clause). Real estate contracts often have a clause that allows the buyer to get this inspection done 24 hours before the scheduled closing. If there is a problem, and the parties can’t agree on new contract terms -- such as who pays to fix those problems -- either side can withdraw from the contract.

    Title Flaws

    A title issue can sink a house deal. All states have laws that cover titles and deeds transfers for real estate from one person to another. By law, the seller must have the legal right to transfer the title to the buyer. A seller with liens against his property or unresolved estate claims does not have a clear title. In such cases, the sale of the house is illegal until the seller clears the title flaws. Regardless of the buyer's wishes, the seller must cancel the contract.

    Contract Options

    When a buyer or his agent presents a purchase contract to a seller, in most cases he gives the seller's agent a deposit or "earnest" money. The purpose of earnest money is to take the property off the market and keep the seller from taking a better offer. If the buyer then changes his mind, she can still break the contract but will forfeit the earnest money as a way of paying for the seller's inconvenience. On the other hand, if a seller changes his mind about closing the sale, a lawsuit is usually the buyer's only option.

    About the Author

    Carol Luther has more than 25 years of business and technical writing experience and 10 years of experience in international health project management, which includes child survival, youth AIDS and health systems information technology. Luther's work has appeared in "Diamond" magazine and online at Global Progress, Mahalo, Trazzler and Wcities. She has a master's degree in public and international affairs from the University of Pittsburgh.

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