Seller Trying to Back Out of Contract - Posted by Elizabeth NJ

Real Estate Investing Real Estate Law
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Posted by Elizabeth NJ on March 21, 2006 at 20:28:27:

Matt,

The area I’m in is a hotbed of investment activity and many property owners are almost standing on street corners waving banners to sell their homes. Single family homes are going in the high 5’s and 2 families are going in the high 6’s & up. I can’t touch multiple unit properties here and most of them go to the big money guys.

I have in the past made many deals where I walked from the table with about $20K in profit and I was happy for it. I still make those deals. My experience is that the higher numbers do not come around that often and I’m determined to get this one to the closing table.

I’m glad I posted my scenario because I’ve received some interesting and useful comments and I may use them.

Thanks for your comments.

Elizabeth

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Seller Trying to Back Out of Contract - Posted by Elizabeth NJ

Posted by Elizabeth NJ on March 20, 2006 at 18:44:09:

Hello all,

Well this is a first for me. I now have a “hostile” seller.

I signed a contract to purchase a property. The owner has been in & out of my office numerous times over the past few years to make copies, send faxes, etc. so we’re not total strangers. She said she wanted to sell her house and after discussion of when she wanted to move (has a kid in school), what her plans were etc., I prepared a contract incorporating accommodations to her [move after school ends].

I told her I would call her the following week to make arrangements for my contractor to get into the house to assess rehab costs. No problem.

Last week, she came into my office and “ordered” me to tear up her contract. I said I’m not prepared to do that & asked her what had caused the change of heart. First, she said I don’t want to sell; then she said I want to sell to a family member; and finally she said I want to sell to a friend. I told her under no circumstances would I tear up the contract and instructed her to consult with an attorney. In the meantime, my atty has sent certified mail informing the seller that the contract is legally binding. [I wrote it and I’m not stupid – the only escape clause is for me.]

I have spoken with the attorney the seller consulted with and he told me that he has informed his client that the contract is in fact legally binding and suggested that she cooperate in moving this transaction forward.

I don’t want to be doing business with someone I have to threaten to bring to the closing table. On the other hand, my office & this property are in a pretty pricey area and I’m absolutely positive that someone is in her ear with whispers of more money, etc.

My purchase price is well in line with other properties similar to hers in the area & hers needs a great deal of rehab.

In any event, I intend to go forward and close according to the terms in the contract. [I filed a notice of settlement today.]

Has anyone had to deal with a hostile seller and how did you handle the transaction?

There’s no question that I will complete the transaction, but I don’t want to have to watch my back thru the whole deal.

I welcome your thoughts.

Elizabeth

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Re: Seller Trying to Back Out of Contract - Posted by dutch

Posted by dutch on March 26, 2006 at 10:01:23:

Life is too short for that crap. Tear it up and move on.

Just my opinion, it’s what I would (and have) done. Too many other deals to work that hard on trying to force a seller to sell.

Dutch
Oklahoma

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Re: LOOK TO THE FUTURE - Posted by Matthew G

Posted by Matthew G on March 20, 2006 at 19:13:55:

Elizabeth-
Some will some won’t so what, NEXT. I understand your set on getting her to close but WHY? if you let her out maybe things won’t work out and then she’ll come back to you and you can get it even cheaper! Why cause yourself so much tension, bad vibes and xtra expense. What comes around goes around- And believe me it will! I had to learn the hard way - I hope you don’t. I had ex- wife screw me for 2 million in property and such - she ended up on drugs and lost it all- I went on and created the profits over and over again- that was 8 yrs ago. LIFE IS TOO SHORT!!

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Re: Seller Trying to Back Out of Contract - Posted by Killer Joe

Posted by Killer Joe on March 20, 2006 at 18:58:06:

Hi Mom,

The last property I bought I made the seller escrow $1000 until they were totally out of the property. I wanted to give them incentive for removing there posessions in a timely fashion, and without further damaging the property. I would reccomend this in your situation, as well. One well placed bag of concrete can do a lot of damage.

As an aside, once my property was vacant I noticed someone had turned on an outside faucet between my visits and let 4200 gallons of water seep into the foundation. I’m glad I caught it right away before it could do any damage. My guess it was a retalitory act, go figure.

Hope everything else is going good for you,

KJ

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Re: LOOK TO THE FUTURE - Posted by Elizabeth NJ

Posted by Elizabeth NJ on March 20, 2006 at 19:28:34:

Matthew,

Thanks for your comments.

In this business, our reputation is all we have, and I have an excellent reputation. I am not heavy handed and have never had to arm wrestle anyone.

The issue is not to wait to see if she’ll come around next time. I’ve been in this business for some time and I can read people a mile away, and all my senses were on full alert when she started talking about wanting me to tear up the contract.

Northern NJ is a heavy investment area with new construction all over and this property is in the heart of it all, which is why I’m sure someone is pushing her to try to cancel the contract.

I will close as scheduled and take KJ’s advice & protect the property from the seller in the meantime by having my atty serve the seller with appropriate notice.

Thanks for your comments and good for you for getting out of what must have been a difficult situation.

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Re: Seller Trying to Back Out of Contract - Posted by Elizabeth NJ

Posted by Elizabeth NJ on March 20, 2006 at 19:13:37:

Thanks KJ for your comments. I forgot I’m still mother to the known world!!!

I will definitely keep your warnings in mind. The property is right up the street from my office so we’re always around to keep an eye on it.

The seller doesn’t seem to be the kooky kind, but who knows.

Thanks again & all the best.

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Re: LOOK TO THE FUTURE - Posted by ski

Posted by ski on March 20, 2006 at 19:41:44:

For a commission?? I would let her off the hook and spend my time on something where I can make a buck w/o the hassells.

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Hmmmmm…I’m curious - Posted by IB (NJ)

Posted by IB (NJ) on March 21, 2006 at 17:49:33:

Whay would you assume SHE was a realtor???

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Re: LOOK TO THE FUTURE - Posted by Elizabeth NJ

Posted by Elizabeth NJ on March 20, 2006 at 19:55:44:

Possibly you have misread my posting.

I am an investor, not a real estate agent. I am the BUYER in this transaction. I am not making a commission.

My net profit after purchase & rehab should be somewhere in the mid 6 figures.

Thanks for your input.

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Re: LOOK TO THE FUTURE - Posted by Kristine-CA

Posted by Kristine-CA on March 21, 2006 at 02:27:24:

MId six figures? Isn’t mid six figures $500K?

If that’s the case then you certainly don’t need any body’s advice here.
It’s your contract and attorney against the sellers. It sounds like your
contract is in place and written to protect you in this kind of situatuion.

Since you say you have every intention of closing, what input are you
looking for here?

I’ve never closed against someone’s wishes. Why bother? Well, ok, I
might bother for $500K.

Have you considered asking the seller if she’s interested in a
cancellation fee to let her out of the contract? This gives her a chance
to really look at what she may think is a better offer and follow up with
any such buyers. Often times when it comes to real cash offers, their
better offer buyers aren’t really able to perform. Then the seller can
see that their current contract is the real deal. If they really do have a
real other offers with real $$ then they can afford the cancellation fee.
Either way it gives the seller a choice and some input into how the deal
goes down.

But this all assumes rationality on the part of the seller doesn’t it? My
experience is that a lot of sellers aren’t rational. And finishing a deal
with someone who feels cheated and forced is a rough way to go. I
speak from experience here with probate deals. Sellers/heirs have all
kinds of ideas about value after they sign contraccts. This is because
there is a long time to think about it and get input (and those other
offers that always come after mine!). That being said, I’ve never had
anyone try to get out of a contract–just complain a lot about the deal
they are giving me. :slight_smile:

If it were me, I’d still try for some kind of compromise. Kristine

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Re: LOOK TO THE FUTURE - Posted by Matt (MPD) IL

Posted by Matt (MPD) IL on March 21, 2006 at 24:55:53:

In the mid 6 figures?

Um, who cares what advice anyone on here could give… if you’re netting that kind of money on a single rehab why would you ask anyone here where for most of us our average annual net isn’t that high?

If you stood to make 10, 15 or even 20 thousand but it was going to cost you time, atty’s fees, bad blood etc., I’d say it was worth thinking about moving on to the next deal, but certainly not in this case.

You really stand to net that much on this single deal?

Matt

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Re: LOOK TO THE FUTURE - Posted by Elizabeth NJ

Posted by Elizabeth NJ on March 21, 2006 at 20:21:16:

Hi Kristine,

I always enjoy reading your comments. I especially like your suggestion of having my seller escrow a cancellation fee - Killer Joe had a similar suggestion but his went to the seller escrowing a fee to ensure the protection of the property [from the seller] until she moved out.

I posted here simply to inquire if anyone else had experienced this and I have received some interesting and some helpful comments as you have seen.

It’s true, none of us want to be in the position of dealing with a hostile seller and frankly, I’ve never experienced this.

As to compromises, I’m all for them and I’ve already made a huge compromise with her in permitting her to stay in the property for about 3 months after we close.

Sometimes I think I become too personally vested in a deal and wanting the other side to “like me” – I’m having flashbacks of Sally Fields at the Oscars years ago saying “you really like me” to the audience made up of her peers!!!

We’ll see how it goes. I filed a notice of settlement today and provided a copy to her attorney.

Thanks for your suggestions.