Seller Cannot Close Escrow, What’s a Buyer To Do?

If you’re a Seller and you cannot close escrow and perform the real estate purchase and sale contract, for various reasons ranging from cold feet to lack of funds for paying off their lender, you could get sued by the Buyer and be forced to sell your property.  This posting will deal only with the scenario where both parties wish to close.  My next article will address the situation where Seller is refusing to honor the purchase agreement and Buyer wishes to enforce the agreement and acquire title to the real property.

Sometimes a Seller does not possess sufficient funds to close escrow but does not start a short sale process with their lender, as in when Seller is waiting on the proceeds of another sale closing or a settlement payment to fund the closing.  That could land the Seller in hot water, and could potentially constitute fraud in the inducement of the contract. 

In said situation, if the sale or settlement funds do not reach the Seller on time, the Seller would be in breach of contract.

Listing agents and realtors are encouraged to not create legal exposure for their clients and refer them to a competent real estate attorney well versed in the drafting and litigation of purchase and sale agreements to draft the appropriate language for that seller’s specific and unique situation in a counter offer or addendum BEFORE anyone signs the final acceptance. 

Seller must not only disclose this situation to the Buyer before the Buyer enters into the purchase agreement, but Seller must make the “receipt” of “free and clear” settlement funds a “condition” of closing in the purchase and sale agreement or a “contingency” of the deal.  

A Buyer who has performed all of their obligations pursuant to the contract, would be in a position to sue the Seller for specific performance, seek a court order for title to the property, record a lis pendens on the property, and seek damages that may include attorneys fees and costs. 

Here, the better course of action may be for the Seller to negotiate with the Buyer and amend the contract to include the aforementioned contingency. Of course, at this point, the Buyer would likely demand concessions from the Seller, such may include a lower purchase price which would further increase the dollar amount that Seller needs to procure to pay off the loan on the property.  Yet another example of why if you are selling real property in California, you should hire a real estate attorney well versed in the drafting and litigating of the purchase and sale agreement to draft the appropriate language in your contract or counter offer BEFORE anyone signs.