Under Contract Woes

Originally Created On:
October 28th, 2010 at 6:27 pm
You sold your house to someone else?
But we were already under contract!

I have heard horror stories about investors who have executed an Agreement of Sale with a FSBO seller. The seller then turns around and signs contracts with multiple buyers, collects multiple deposit checks, and closes with the highest bidder.

Now we all know that an executed Agreement of Sale is a legally binding document and the “buyer shall have the right to seek any remedy and maintain any action against Seller to which buyer may be entitled whether at law or in equity”. So you got that going for you… which is nice. (To paraphrase Caddyshack)

What would you do if you were in this situation?

You could hire an attorney and sue the seller for breach of contract. The attorney will probably require a retainer. They will attempt to collect your deposit, and the difference between your contract price and what the buyer paid. You will have to determine if this is worth the attorney fees you would incur. This could get costly and drag out for a long time.

The investor should have attempted to keep the seller from shopping the Agreement around to other buyers. How can you do that? By using a “Notice of Agreement of Sale”. Speak to your attorney; he/she can draft one for you. Make sure it lists you as the buyer and includes your address and phone number.

When the agreement is signed, stress to the seller that this is a legally binding document. Tell them that they can’t sell this house to another buyer. Read the paragraph in the Agreement that discusses the buyer’s recourse if the seller does not perform. Then have them sign the Notice of Agreement of Sale. Explain that this document will be recorded at the Recorder of Deeds. This gives notice to the world that you are under contract to buy this property, thus clouding the title.

The seller will not be able to close with another buyer until you agree to remove the Notice. When title is pulled, the closing attorney will see your notice, and contact you to see your interest in the property. Your Agreement of Sale will stop the closing with another Buyer, as long as it is dated before the new Agreement. You should then contact the Seller to remind them that they need to close with you.

The Notice will need to be notarized, so take them to your bank or Mail Box Etc. You will also need to pay a recording fee. Take the notice to the Recorder of Deeds or have your Attorney record it for you.

Notice: I am not an attorney, so seek local counsel to see how this applies to your situation and your state.


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