Q I have signed a contract to sell my house, but it appears that the buyer is having a case of buyer's remorse. I think she wants to back out from the contract. My real estate broker has asked me to determine if the buyer is in default on the terms of the contract. How do I do this? What constitutes default?
AI am surprised that your real estate broker was unable to provide you with a basic understanding of the concept of default.
The dictionary defines "default" as "an omission or failure to perform a legal duty."
You and your buyer signed a purchase and sales contract. The first question is whether this is a valid, legally binding document. To have a valid contract, four things are required:
Offer. In the Washington area, it is customary for a potential buyer to make an offer to the seller. The seller can either accept, reject or counter that offer. If the seller opts for either of the latter approaches, the original offer presented by the buyer is no longer in effect.
Acceptance. Sometimes buyers and sellers go back and forth, making offers and counteroffers. If an offer or counteroffer eventually is acceptable to both sides, and they sign on it, there is a contract. This means that both parties have reached agreement on all of the terms and conditions included in a real estate sales contract.
Consideration. Generally, when a buyer makes an offer that is ultimately accepted, he will give his lawyer or his real estate broker a check for a portion of the purchase price, usually 5 or 10 percent. This is known as the earnest money deposit. To have a valid, binding contract, there must be some consideration -- and it usually requires money. However, consideration need not always be financial; if the purchaser has refrained from buying some other property (or if the seller has taken the house off the market because of the contract) this can also be considered "consideration." To be on the safe side, it is best to have some money attached to the sales contract.
Written document. To have a legal contract for the purchase and sale of real estate, there must be a written document, signed by both buyer and seller. Oral promises will generally not be upheld in court. In modern times, faxes and e-mails have become standard practice, but even if you have reached agreement by e-mail, make sure you still have a paper trail, signed by all parties to the transaction.
Once you have determined that there is a valid contract, the next step is to see if there are any contingencies that would give your buyer the right to cancel the contract without being in default. There are many types of contingencies -- including home inspection, financing, review of condominium or homeowners association documents, or even sale of the buyer's home. Read the contingencies carefully. If you have questions as to their applicability, talk with your lawyer as to the effect of any such contingency.
Let us now assume that there is a valid, legal contract and that your buyer has removed all contingencies. Your buyer has obtained a satisfactory home inspection and a firm commitment for a mortgage loan. But at the last minute, your buyer wants out of the deal. Unfortunately, this is not uncommon nowadays.