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Can a Seller Get Out of Real Estate Transaction If in Escrow?

by Jayne Thompson

A real estate transaction is in escrow when one party deposits money or documents for delivery to the other party upon the satisfaction of certain conditions. Home purchase conditions are called contingencies and are commonly negotiated as part of a home purchase agreement. When all the contingencies are met, the agreement becomes a binding contract. Neither party can then walk away from the deal without penalty.

Contingencies

A home purchase agreement is a legally binding contract. Once signed, neither the buyer nor the seller can simply change his mind. The only legitimate way for the seller to get out of the contract is if a contingency is not met. Contingencies are common in real estate transactions. They give the buyer time during the escrow period to organize his mortgage loan and carry out a home inspection, and the seller time to resolve any claims or liens against his title. A properly drafted contingency gives clear instructions about how to satisfy the contingency, and the time limit for doing so. For example, buyer and seller might be allowed seven days to negotiate inspection-related repairs. If they fail to reach an agreement, the seller may rescind the contract.

Notice to Perform

In some states, if a homebuyer breaches the terms of a contingency, a seller should issue a "Notice to Buyer to Perform." This puts the buyer on notice that he has failed to meet his contractual obligations, and gives him a certain amount of time to comply. If the homebuyer does not observe the notice, the seller can cancel the contract.

Legal Remedies

When all contingencies are met, the purchase agreement is said to be unconditional, and the parties must move to closing. If the seller refuses to do this, the buyer has two basic remedies. First, the buyer can insist that the seller transfer the property to him. This is known as "specific performance." Alternatively, the buyer can cancel the contract and seek damages to compensate him for the loss he has suffered as a result of the seller's breach. Both courses of action require the buyer to file a lawsuit and obtain an order of the court. The purchase agreement may limit the amount of time a buyer has to file for specific performance to, say, six months after the contractual closing date, so the buyer must carefully read the contract terms.

Self-help

Of course, the buyer can always agree to let the seller walk away from the deal. A buyer might want to avoid the hassle of legally enforcing the contract, cut his losses and start looking at alternative listings. In this case the parties are free to agree to whatever release terms they want, which is an opportunity for the buyer to recover costs and fees incurred during the course of the transaction.

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