Real Estate Contract Termination
I Don’t Want the House, Just My Money back…
(… or how to handle the termination of the contract and get your deposit back from a Seller)
So you found the home of your dreams. It has everything you wanted and more. But for some reason circumstances change and you need to get out of the deal. So, how does the buyer handle the termination of the contract, and get their deposit back?
This article will discuss the standard MLS Realtor contract, as it is the most commonly used contract. Of course, the Buyer may terminate the contract at any time, and forfeit their deposit.
But I want my Deposit back, too……
If the Buyer wants to terminate the contract and get their deposit back, their options are somewhat limited. There are two standard contingencies in most MLS contracts that allow the refund of the Buyer’s deposit after the termnation. Please be aware, however, that the use of these contingencies does not guarantee that the other side will be in agreement, and there can always be factual issues as to compliance with the requirements of the contingencies.
First, there is a mortgage contingency date.
This is the date by which the Buyer has to secure a mortgage commitment. If the Buyer is unable to secure a mortgage commitment, the Buyer may terminate the contract by providing notice to the Seller that he or she could not obtain a mortgage. This date is set by the parties in the drafting of the contract. The Buyer should be very aware of this date, as it is a “drop dead date.” This means that the date set is firm, and should the Buyer not obtain a mortgage and fail to notify the Seller of that on or before the date set, the contract remains in full force and effect. Similarly, if the Buyer notifies the Seller that he or she was unable to obtain a mortgage commitment, but does so after the mortgage contingency date has passed, the Buyer’s right to terminate the contract may have expired. Buyers may request to have the date changed, and extended. If the Sellers agree, then a new date is picked. Be sure to monitor this date closely, and if it is getting close, ask for an extension.
Second, there is a Home inspection contingency.
The second standard way in which the Buyer may terminate the contract and still receive the deposit back is as a result of a sub-standard Home Inspection. Typically, the Buyer reserves the right to conduct a home inspection within 14 days of the Sellers acceptance of the offer. Within those 14 days, the Buyer must conduct the inspection and also notify the Seller of any deficiencies noted by the inspection. The inspection typically covers plumbing, electrical and structural areas. It may also include a test for radon in the air and/or water, termites or other wood destroying pests and mold or mildew. If the inspection results are not acceptable to the Buyer, the Buyer must notify the Seller in a timely manner of the deficiencies, and also of how the Buyer proposes the deficiencies be remedied. This date is also a drop dead date, and requires strict compliance. If you are close to the date, be sure to request an extension from the Sellers before the date passes.
Once the Seller is notified, the Seller must respond to the Buyer’s requests. The Seller may choose to accept all of the Buyer’s demands, some of them or none of them. If the parties are unable to agree on a resolution to the issues within the time allowed in the contract, then either party may terminate the contract, and the deposit is refunded to the Buyer.
There are also some non-standard contingencies that Buyers may insert into contracts to allow them to terminate without losing their deposit. In some contracts, the Buyer places a special condition in the contract, stating that the property must appraise at or above the purchase price, or the Buyer may terminate the contract. If the Buyer terminates the contract pursuant to this condition, then the deposit is refunded.
In some contracts, the Buyer inserts a contingency that the contract is subject to a review by their attorney within a set number of days after acceptance by the seller, and that the Buyer may terminate the contract during that time if they wish to, after consulting with their attorney.
In some cases, the Buyer may also be selling their current house, and wish to reserve the right to terminate the purchase if they are unable to sell their current house. This is often referred to as a “Hubbard Clause”. It gives both parties certain rights that can be beneficial to both parties. However, it also imposes obligations that can pose a problem for the parties.
Before signing a contract, be sure to review all the parts and paragraphs in the contract. If you have questions, be sure to consult with your attorney about those questions before attempting the termination of the contract.