BE CAREFUL WHAT YOU SAY ABOUT CANCELLATIONS.

December 7th, 2012 at 7:24 pm

I got a call this week that is unfortunately all too common. In this case, we represented the buyer and an outside broker had the seller. Our buyer did all his due diligence and inspections and, after some negotiation and a credit from the seller, removed all his contingencies but loan. A few weeks later, with the loan application still pending, our buyer changed his mind and decided he wanted to cancel the deal. Without our knowledge, he wrote an e-mail, with a copy to the listing agent, asking for the cancellation and explaining and why he wanted out. That explanation related to a number of property conditions, including traffic in the neighborhood and alleged defects. He did not say anything about his loan.

Of course, when the seller was asked to sign a cancellation, they balked. The seller stated that the buyer’s e-mail made clear the cancellation was based on property condition and not on anything else. As a result, because the investigation contingency had already been removed, the seller said they were going to keep the buyer’s $50,000 deposit. Now, after all that, the buyer’s loan actually got denied, and the buyer is trying to use that contingency to get out. As you can imagine, the seller is skeptical, believing that the buyer asked the lender to deny the loan or, at a minimum, that the buyer did not cooperate in trying to get the loan approved and therefore acted in bad faith. Therefore, he is still refusing to return the deposit.

So, what is the lesson of this story? Obviously, you must think long and hard before telling a seller why you are cancelling the deal. You must review the contract and determine what contingencies and cancellation rights still exist. At a minimum, you have to make sure that your explanation fits within one of those contingencies. In truth, the Cancellation of Contract form (CAR Form CC) does not require you to identify what contingency you are using to cancel. The most common paragraph used when exercising a contingency would be paragraph 1E of this form, which reads that the cancellation is being made “As otherwise permitted by paragraph _____ of the Agreement.” In completing the clause, you can merely put “14” in the blank, thereby identifying the general contingency clause in the Purchase Agreement. That way, you don’t identify any particular contingency and then only have to do so if asked by the seller. Of course, that question lets you know you have to be careful, and you can talk to your manager or the legal department to determine how best to fit your cancellation within your remaining contingency rights. By not identifying any particular clause, you give yourself options and freedom, and don’t tie yourself down if things change at a later time.

So cancel carefully and only identify a cancellation right when you have to. That way, all available options will be open to your buyer and you will have a better chance to get their deposit back.
As always, contact us with any questions you may have.

Like what you see here? Sign up for more! Our free e-newsletter informs you of listings in your community, insider real estate tips, the latest in home trends, and more.

Recent Posts

Archive