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Ask an expert:
What if my buyer defaults?
Q: What recourse do I have if my
buyer defaults before closing?
A: When you enter into a
contract with a buyer, you would think you have sealed the deal.
But sometimes a buyer will pull out of a contract at the last
minute. Most purchase contracts incorporate provisions regarding
defaults, so the first step is to read your contract closely.
First, make sure your buyer has defaulted. Agreements often
include contingency
clauses, which allow the buyer to declare the contract null
and void if certain criteria are not met. Some examples of
contingencies include a satisfactory home inspection or adequate
mortgage financing. Most clauses specify a time limit to meet
the contingency. If the contingency is not resolved within the
time limit, the buyer can back out of the purchase contract
without penalty. For example, if the contract is contingent upon
a 30-year fixed-rate mortgage, and the buyer has made a
good-faith attempt to secure the desired financing but has been
denied, he or she can legally bow out of the purchase contract.
There are many contingency items that a buyer who gets cold feet
can take advantage of to walk away from the purchase. Buyers who
want to back out of a purchase agreement will often use the
financing contingency, saying they were unable to obtain the
loan needed to purchase.
If all of the contingencies have been resolved and the buyer
decides to back out of the contract, it is indeed a default. In
this case, check your contract for a liquidated damages clause,
which will specify the compensation for which you are eligible.
If you do not have a liquidated damages clause in your purchase
contract, there are a couple of options you can pursue.
The simplest way to resolve a default is to keep the earnest
money deposit -- the percentage of the purchase price paid up
front by the buyer to indicate the seriousness of his or her
offer. The deposit is determined before the purchase contract is
signed, so try to negotiate as large a deposit as possible.
If you feel the earnest money deposit is not sufficient
compensation, you can take your complaint to court. Keep in mind
though, that going to court can be expensive and time-consuming,
and the outcome is unpredictable. Before you take any action
against your defaulted buyer, consult a real
estate lawyer for advice on your particular situation.
Try to avoid a default altogether by being proactive. Check in
with your real estate agent to make sure he or she is monitoring
all the issues surrounding your sale. If you and your agent
discover that things are moving slowly or that the buyer may be
getting cold feet, address it with the buyer's agent. If the
buyer is going to back out, the best thing to do is to find out
early and get the transaction cancelled so you can get your home
back on the market. The worst thing to do is procrastinate. If
you procrastinate, you will have taken your house off the market
for weeks or months and likely missed another buyer. Plus, you
will have made extra mortgage payments that make the pain of
procrastinating even worse.
Use our free mortgage payment calculators:
1.How much do I have to earn?
Not sure how much money you'll have to earn to afford your house payment and accompanying expenses?
2.Mortgage payment calculator
Want to know how much your monthly payment is for your mortgage?
3.Bi-weekly mortgage calculator
Want to know how much time and money you'll save paying off your loan on a bi-weekly payment plan?
4.Additional payment calculator
How much do you save by paying more or making additional payments than your initial mortgage terms?
5.How much can I borrow?
Want to know how big of a mortgage you can take on?
6.Should I pay discount points?
Not sure if you should pay discount points on your mortgage loan?
7.How much will I save by refinancing my loan?
How long will it take to recoup the costs of refinancing my home mortgage?
8.How much will my tax deduction be?
Want to know how much your home mortgage will save you in taxes?
9.APR calculator
To find out the annual percentage rate of your loan, enter the loan amount, interest rate, points, other costs and year-length term.
10.Interest only monthly payment calculator
To find out the monthly savings you could gain from an interest-only payment plan.
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