Real estate: can our seller back out of the contract since we were late in satisfying a Notice to Perform?

October 17, 2011 9:53 PM

We're in escrow on a house in southern CA, and were recently the unhappy recipients of a Notice to Buyer to Perform (or more accurately our realtor was, by email.) We got the contingencies lifted but did not quite do so within the 48 hour period dictated by the form, and now the seller wants out. Can they now back out legally?

Because our lender is apparently very picky about comps and kept sending the appraisal back for revision, we ended up exceeding the time allotted to lift our contingencies. The seller's agent emailed our agent a Notice to Buyer to Perform with a 48 hour window after business hours on Thursday evening. They then relented under his protestations that they wouldn't be able to cancel escrow over the weekend anyway, and agreed to give us until "Monday morning." After spending all day on the phone with underwriting (with periodic calls to the seller's agent to let them know he was still working on it,) our mortgage broker eventually got the bank to accept the last revision of the appraisal and we lifted all contingencies around 3 PM Monday. Escrow was never cancelled, but we did not successfully meet the 48 hour stipulation of the Notice to Perform.

Is the seller now free to back out of the contract, or did they miss their chance when we lifted the contingencies? Their agent has told our agent that it is their intention to walk away from the deal, since they have a cash offer as backup and feel it would be "less messy" to go with that instead of continuing with our FHA loan and all the repairs they have agreed to make under our current contract.

We plan to consult a lawyer, but this all just went down today and I'm eager to hear other people's experiences and advice. Based on what I've seen from this seller so far, they seem willing to employ some sketchy tactics if it will e.g. save them money on homeowner's insurance, and also failed to disclose a sewer line issue that would've been nearly impossible for them not to know about, so if this looks like an underhanded negotiating strategy to you I'd like to hear about that too (it seems strange to me that they wouldn't cancel escrow immediately after the notice expired if they really wanted out.)

Our realtor has mentioned arbitration as an option and feels that our chances would be fairly good, but I'm not sure how experienced he really is in this situation. Thanks for any advice you can provide, it's been a harrowing few days and I could really use some informed guidance. Again, we do plan to consult a lawyer.

posted by contraption to law & government (10 answers total)

This forum thread seems relevant, but also seems to pose more questions than it answers. Is email a valid way to serve this form? Do we or our agent have to sign that we received it before the clock starts? Is a verbal extension good for anything?
posted by contraption at 10:48 PM on October 17, 2011

Eep. If you're using the standard southern CA offer forms, yeah, they can probably back out legally. Your earnest money may even be at risk (I can't remember exactly whether this happens before or after contingencies are lifted, and in any case I am not your lawyer, this is not legal advice, etc etc blah blah).

In our case, we didn't meet contingencies exactly according to the offer either, but everyone involved wanted the deal to go through so we didn't have a problem when push came to shove. The only real power you have left is to walk away or dare them to cancel escrow. I know it's really hard to walk away once you have hundreds of dollars invested in inspections, appraisals and what have you, but sometimes it's the only thing you can do.

I wish I could tell you it's not a big deal. What I can say is that there are plenty of houses that are just as good if not better at the same price. Good luck with the house hunt and memail me if you have any questions about my experience.
posted by infinitewindow at 10:52 PM on October 17, 2011

I've never bought a house, and I've never seen the form before so this is a question for you to research. When the form says 48 hours, does that mean only during business days, or does it include the weekend? If it doesn't include weekend hours and you got the form Thursday evening, then you had until Monday evening to comply. You may need to check the laws related to a Notice to Perform to get the true definition of 48 hours.
posted by MultiFaceted at 4:45 AM on October 18, 2011 [3 favorites]

48 hours is 48 calendar hours, not two business days.
posted by contraption at 7:00 AM on October 18, 2011

The only real power you have left is to walk away or dare them to cancel escrow

I think its pretty clear that they have a better offer and want out. They want you to walk away. They wanted you to fail to comply with the notice to perform, that's why they sent it after close of business on a Thursday - they knew there was no way you could comply.
posted by missmagenta at 7:38 AM on October 18, 2011 [2 favorites]

They have directly communicated that they want to walk away in order to pursue the other offer. My question is whether they are entitled to do so, given the fact that we are still under contract with them (they haven't cancelled escrow) and have now released all contingencies as required by the Notice to Perform. Serving the notice right before the weekend was clearly a ploy and I know they could've cancelled escrow during the period between the notice expiring and our removal of the contingencies, but I don't know whether they still have the right to cancel it. We failed to meet the requirements within the designated time, but the Notice to Perform is nominally a tool to move the contract along and its requirements have now been satisfied.

A further question: if they do still have the right to cancel escrow but choose not to exercise it, do they retain it indefinitely? Could this maneuver have been a gambit to obtain a "get out of jail free card" so that they can now walk away anytime they feel things are looking unfavorable to them?
posted by contraption at 10:49 AM on October 18, 2011

This really is a question you should already paid an attorney in your jurisdiction to have answered. It would be a very small price to pay given what is at risk.
posted by buggzzee23 at 1:08 PM on October 18, 2011

Yeah, it's time for Ask Your Attorney rather than Ask Metafilter.
posted by Justinian at 1:15 PM on October 18, 2011

Read the contract. Have a lawyer read the contract. It's binding; whatever it says it what you agreed to. Your realtor has some 'splainin' to do.
posted by theora55 at 2:20 PM on October 18, 2011

Not a lawyer, etc. It sounds like a strong arm tactic to me. Yes, I think their claim is legit but it's also a gamble for them because it's pretty tenuous and could be easily fought. I imagine that if they were taken to task on it they would simply proceed instead of dealing with litigation.

Yes, I have some experience in real estate, and stuff like this happens all the time.

Hang in there, it's a bumpy ride, but I think it'll work out for you!
posted by snsranch at 4:58 PM on October 18, 2011