Let’s play another fun game of Worst Case Scenario Survival: Real Estate Edition.
You’ve found it – the home of your dreams. It’s the perfect size for your family, in a great location, and the seller accepted your low offer. The stars are aligning and everything is moving smoothly. You fly through inspections and the finish line of closing is within sight up ahead. And then the boom comes – you’ve been fired from your job!
In addition to the instant panic of how to pay bills, sustain your family, and how you will find another job; you’ve also got this pesky real estate contract looming overhead. It is a legally binding contract, after all. What to do? Step 1: Notify your lender and your agent, as both can help guide you. Terms of the contract and your personal financial situation may vary and can change the outcome.
Best of the Worst: Look at your real estate contract. If you made the purchase subject to your ability to qualify for a loan, there will be a form included called “Third Party Financing Addendum for Credit Approval.”
Look at the number of days you had to provide notice to the seller about your ability to secure financing. If you are within that time frame, you’ve dodged a bullet. As that paragraph reads, you can give written notice to the seller of your inability to qualify for a loan (provided that this is actually the case – again, check with your lender). As long as you are within the time frame of that paragraph, and have met all other terms of the contract, you should be entitled to a refund of your earnest money. Will you get reimbursed for inspections, option fees, or your time? No, but with the return of earnest money, you stand to get back a large chunk of money we’re thinking you could use right about now.
Worst: If your contract is subject to financing, and you’re past the timeframe of the Third Party Financing Addendum for Credit Approval, the tides may have turned against you, my friend. Assuming that the seller isn’t themselves in default by any other term of the contract, you can ask the seller to release your earnest money, but chances are great that they will deny your request. After all, they’ve taken the home off the market for a while, spent money on repairs, possibly turned down other buyers, and possibly even have to worry about the security of their own future living arrangements. Your best solution in this case might be to notify the sellers as soon as possible and try and terminate the contract. Most will want the earnest money going to them (liquidated damages) and then you may part ways.
Worst of the Worst: Take the Worst case scenario above and then add in the truly possible legal ramifications. Technically, by not closing (even if it wasn’t really your fault or intention not to close), you could be considered to be in default of the contract. Paragraph 15 of the contract states that “Seller may [...] enforce specific performance [or] seek other such relief as may be provided by law…” This means potential lawsuits, court battles, financial penalties and more. There may be a clause in your contract which allows mediation before arbitration, but even that can be costly.
Remember, if you lose your job during a transaction:
– DON’T hide a job loss or change from your agent and lender.
– DON’T delay notification. Even if you are able to find a new job quickly, your loan will be affected and people will need to know.
– DO read your contract.
– DO pay attention to contract deadlines.
– DON’T become unreasonable. No one intends for these things to happen, but each party may be suffering a different loss. Try to look at things from the other perspective and a middle ground can often be found.
– DO work with an agent you can trust. They’ll be there to help guide you.
image courtesy of KellBailey