Backing Out Of A Real Estate Contract After Closing

Can a home buyer back out of a contract after closing on a loan and the funds have been given to sellers?

1 Answer

It seems that so many answers to real estate questions can be found within the terms of a contract. So to, it is, with this one. This first place to check for an answer is your sales agreement. It is possible that there is some trial period after closing during which the whole deal can be undone (this may happen in a commercial contract), but there probably isn't. It is highly unlikely that there is a term in the agreement that allows the buyers to back out after you already have possession of the loan proceeds.

One way that the buyers may be able to back out of the contract even after you have received the loan proceeds is if they have discovered some egregious defect that would allow them to void the contract. Now, the escrow period is designed to avoid this very situation, and generally if a buyer doesn't discover a defect during escrow, it's just too bad later on. Most defects fall under this rule, but some major defects can cause the contract to be voided. Examples would be if you knowingly sold a house on top of superfund clean up site or warranted that you had good, marketable title when you didn't.

The latter example puts me in mind of another point worth making which is that, basically, once you have traded title for cash, you are out of the picture. If there's some sort of title defect, title insurance exists to cover that. If it's a different issue, that shouldn't really involve you, either. Technically, the mortgage holder bought the home from you for a lump sum of cash and now owns the home, which the buyer is now purchasing from it with installment payments. The buyer may be asking you to let it out of the deal because the lender won't let it out of the deal unless you take the house back and give back the money, but otherwise, this really isn't a situation in which you have any legal obligation.

Regardless of the circumstances, you are going to want to seek the assistance of legal counsel. Both these situations are beyond the scope of the average layperson. While I'm at it, though I stand by the validity of everything I said, none of it is meant to serve as legal advice. I am offering it for information purposes only, and if you have any further questions, you should seek the advice of legal counsel.