Expert: Karyn Foley - 8/8/2004

Question
I ENTERED INTO AN AGREEEMENT WITH A PERSON TO LEASE HIS HOME FOR 1 YEAR AND THEN BUY IT. THE CONTRACT STATED THAT WE AGREED TO A PURCHASE PRICE OF 185K. THE OWNER RECEIVED 5K FROM ME AT THE SIGNING AND ALSO WE AGREED TO 7K UP FRONT TO DEFRAY COST TO REPAIR THE HOME. THE OWNER DID NOT HAVE THE MONEY TO FIX BEFORE I MOVED IN. THE HOMES WERE APPRAISING AT THE TIME IN THE AREA AT 190K TOPS. I OFFERED TO GET AN APPRAISAL BEFORE WE ENTERED IN TO DETERMINE THE TRUE WORTH OF THE PROPERTY. THE OWNER DECLINED CITING COST. HE AGREED TO 185K. SO WE PUT UP 12K AND SIGNED THE CONTRACT. THE MARKET WENT CRAZY HERE AND THE PROPERTY IS NOW WORTH 290K! THE OWNER STATER THAT THE CLAUSE THAT READS;

IF SELLER DEFAULTS ALL MONIES WILL BE RETURNED TO BUYER.

HE SAYS HE WILL DEFAULT TO GET THE EQUITY OUT OF THE HOUSE AND NOT SELL TO ME. I EXPLAINED TEN MONTHS AGO THAT THE 185K WAS FOR MY FAMILIY'S PROTECTION SO THAT I COULD NOT BE PRICED OUT. HE NOW STATES THAT NUMBER MEANT NOTHING. IT WAS JUST A LOW END NUMBER. I BELIEVE HE IS NUTS AND WILL LOSE IN COURT. HE INITIALED 1 INCH UNDER THE PRICE AND THEN SIGNED AND INTIALED EVRY OTHER PAGE. DO I HAVE STANDING OR CAN HE BOOT ME AFTER BRINGING HIS PROPERTY BACK AND PAYING HIS NOTE FOR A YEAR?  

Answer
Dear Frank,
 My first thought was to get a real estate attorney's opinion on this one.
 My next thought is to ask if you had help negotiating this; if so, contact the agent who assisted you.
 Whether or not he is nuts has no bearing as to whether or not the contract is valid, or what his or your options are. To determine competency is a long and complex process.  However, in small claims court he may come across not too sane.  But whether or not this is a small claims action can only be answered by an attorney.
 Even if the seller default and gives you back your money does not necessarily nulify his obligation to sell you the house.  That is where you need an attorney to carefully look over your contract.
 You bought an option, putting the ball in your court as to buying or not buying.  If you wish to buy, then ask your attorney to consider bringing an action against the seller forcing him to honor a legal contract.  This is called a "specific performance".  Each state may be different with reference to this, that is why I cannot tell you absolutely, plus I cannot legally offer you legal advice.
 In an option, you have agreed upon a price.  If the value went higher, that was not addressed in the agreement and so the original price probably stands.  If the value went down, then you might have not taken advantage of the option, not purchased, and then the contract probably stated what your damages to the seller would be, including your deposit.
 You may try to talk again with the seller using the points above to see what will happen.  Maybe he is bluffing; sometimes a person will honor a contract to avoid a lawsuit.  Especially when the person may well be in the wrong.
 Let me know what happens,  KARYN FOLEY, and good luck to you!