Backing Out Of A Non-Contingent Offer

Some Issues to Consider When Your Client Wants to Back Out of a Non-Contingent Offer

By: David Hamerslough, Esq.

Your client, the buyer, has been the successful bidder in a multiple offer situation. The offer was non-contingent and the buyer has confirmed receipt of an upfront disclosure package. Several days after contract ratification, your buyer tells you that they no longer want to purchase the property. Your buyer then asks you what can be done to get out of the contract and get their deposit back assuming it has been made. This situation continues to occur in our market. This article raises some of the issues that you and your buyer should consider; although, the issues may differ depending upon the facts and circumstances. These issues, and the resolution of them, may also be impacted by past and future statements and conduct of you and your buyer.

1. Why does the buyer want to back out? Examples include bidder's remorse, an issue with the property itself, personal reasons, a desire to purchase a different property, etc. The buyer's motivation may impact the outcome of this situation, as well as the approach that you and your buyer take to resolving it. Past and future statements and conduct may also impact the resolution depending upon whether those statements and conduct are consistent or inconsistent with what the buyer states is his/her reason for backing out.

2. What approach to resolving the problem is going to be taken? The strategy may be impacted by many factors including the buyer's motivation, past and future statements and conduct, how much money is at risk and the buyer's ability to assume that risk, market conditions, the needs and wants of the seller, your relationship with the listing agent, etc. What strategy is selected, when that decision is made, whether the buyer selects that strategy with or without the assistance of an attorney, how the strategy is communicated, and whether the buyer's statements and conduct are consistent with this strategy, can have an impact on the resolution.

3. What statements or representations have been made by the listing agent or seller prior to contract ratification? Such statements could relate to the level of competition or to the condition of the property. There may be grounds to claim that the statements were inaccurate and provide a basis for cancelation.

4. Has liquidated damages been initialed? Has the deposit been actually paid? What is the market value of the property relative to your buyer's contract price? What is the likelihood that liquidated damages have been initialed? What is the likelihood of the property reselling within six months and at what net figure to the seller? If liquidated damages have been initialed, does the purchase contract provide that the deposit actually paid is the sole and exclusive remedy for the seller in the event of a breach or is there a possibility for an action for specific performance by the seller? The answers to these and other similar questions may impact the strategy that the buyer takes and how that strategy is implemented.

5. Are there legal grounds to cancel? This will always depend on the facts and circumstances, but some issues to consider include what purchase agreement has been used, what definition, if any, does it provide for with regard to fully completed disclosures, do the disclosures meet the definition, has a notice to perform been sent and, if so, what timeframes remain active, are amended disclosures contractually required or can they reasonably be demanded? Are there grounds (fraud, mistake, failure of consideration) to assert common law rescission rights? Are there other legal grounds to justify cancelation?

6. What pressure (financial, time, personal, etc.), if any, did the buyer and seller face? Can any pressure be relieved or addressed and, if so, in what timeframe? These factors may have an impact on the strategy that is taken, as well as how that strategy is implemented.

7. Any communication that you have with your buyer or that you or your buyer have with any other individual or entity related to this situation will be discoverable and used in any resolution of this situation. The primary exception would be for an attorney-client communication, but that relationship must be in place, among other things, before that privilege can be asserted. Whether that privilege would then apply to communications between you and your client depends on other facts and circumstances.

8. Once you and your buyer have committed to a strategy or a ground for cancelation, it can be difficult to change that strategy or ground at a later time. Two common examples include (a) a cancelation is prepared and signed by the buyer and states a basis for the cancelation, or (b) a communication is sent to the listing agent that contains a ground for the rescission. Once a cancelation is submitted or a statement is made, it may be difficult to justify an alternative ground or basis for the cancelation such as a contractual or legal one.

The foregoing is a list of some of the issues that a buyer and their agent should take into consideration when they are attempting to back out of a contract. Each situation will turn on its own facts and circumstances.

Comments to this article, as with all articles, are always appreciated.