Expert: liznarr - 8/26/2007

Question
QUESTION: We listed our house in SW Arizona in early February 2007.  We finally had an offer in late June that fell through because the buyer decided she couldn't afford the upgrades she wanted.  So we put the house back on the market and put in new carpeting.  Within days we had another offer and now have a contract.  Our second buyer had some financing issues as his lender went under but he was able to secure funding through another lender.  That set the process back a week and he asked for an extension on inspections and a closing date - which we granted.  We just found out that our buyer misrepresented his marital status and he's not an "unmarried" man yet as his divorce isn't final until mid-October.  If we want to close before the end of October, he needs to get a disclaimer from his soon to be ex-wife.  She's balking and asking for him to cover her student loans.  But if he covers them, his debt to income ratio becomes too high and he will be ineligible for his loan to buy our house.  The buyer has asked us to close in late October.  We now live in another state so we're carrying the costs of two houses.  What should we do?

ANSWER: Hi Deana,

If this Buyer misrepresented his marital status which is delaying your closing, I would suggest the following:

1.   Tell the Buyer that he is costing you both time and money, and

2.   As a consideration of waiting until late October to close, you are requiring that he advance the additional funds NOW it will cost you to delay the closing.

3.   If he balks, you could tell the Buyer you will have to consider putting your home back on the market, with a disclosure that there is a Contract in place which can be “bumped” if another acceptable offer comes in prior to late October.

4.   If the Buyer cannot advance funds now per number one above, and number two above does not pan out, require the additional funds to be paid by the Buyer at closing.

Short of terminating your current Contract with this Buyer or letting it expire after the stated closing date (and any automatic extensions thereof), if there is any agreement reached between you and this buyer for a change in closing date or terms, both parties need to reduce any agreement reached to writing in the form of an addendum to the Contract.

In this event, have your agent (or an attorney if you do not have an agent representing you) prepare an addendum outlining new terms and closing date agreed to.  All parties should then sign the addendum; otherwise, you would not have a binding agreement to hold the buyer to since the original Contract of Sale would have expired.

I hope the above is helpful information.  Good luck to you, and feel free to write again if you have additional questions.

Regards,
Elizabeth

---------- FOLLOW-UP ----------

QUESTION: Hi Elizabeth - Thank you so much for your thoughts on this situation.  However, the buyer elected to cancel the contract this morning which is the last day of the "discovery period".  So we're back to square one.  Our current realtors have had an exclusive listing on the property since February 2007 which has now expired and we have new representation.  Hopefully it will produce more qualified buyers.  It seems that there's nothing out there now to protect sellers.  Are you finding this type of situation to be fairly common?

Answer
Deanna,  Excuse the misspelling below of "there" which should have been "their."  I can't believe that went out that way.  Sorry, but I do know better.  Elizabeth

Hi Deanna,

Sorry this purchaser backed out during the discovery period, but you might consider asking that his earnest money be forfeited to you since he apparently submitted a fraudulent loan application which has cost you time and money.

Check your Contract and make sure that there is, in fact, language within your Contract stating that the purchaser was required to make loan application within a certain period of time after Contract acceptance.

If he did not make timely application, and/or considering the fact that he made a fraudulent loan application, he has breached the Contract.

Next, check your Contract for what happens in the event of a purchaser’s default or breach.  Hopefully, the fact that his earnest money will or can be forfeited to you will be outlined therein.

Had this purchaser been honest about his marital status at the time of making his loan application, the mortgage company could have “turned him down” very early in the process or advised that he would need to wait.  

You could have at that time made a decision which route you wanted to go, but you were never afforded that opportunity because of his fraudulent application and you have lost valuable marketing time.

I would qualify my answer regarding protection for a Seller and say to you that a buyer or seller client’s protection SHOULD BE the licensed agents involved in any transaction.  

Unfortunately, what I’m finding more and more in this profession now is that many agents either don’t know how to properly protect a client, or they don’t care about properly doing a job they were hired to do.  

It is more common than people realize, and the sad fact is that buyers and sellers who buy or sell either (a) without representation, or (b) without a good, reputable agent looking after THEIR interests, can be literally taken to the cleaners.

In your situation, your agent would have had no way of knowing that the purchaser intentionally misrepresented his marital status on the loan application.  It’s also very possible that the agent of the purchaser had no way of knowing this, either.

However, the fact remains from what you have written me that the Purchaser lied on his application, and he should be held to the letter of the law.  This may sound tough, but I have no compassion for dishonest people and unethical agents in this business; and they should all be held accountable for their actions (or inaction).

I hope you have good luck with your new listing company.  Thanks for the update, and don’t forget to rate my answer.

Regards,
Elizabeth