Seller backs out of a contract?!

General Real Estate Investing
1

Here is a question for you guys.

I have a house under contract ($25k cash, a little deal that’d cashflow $795 a month), everything went through at the title company, we got the HUD1’s back … and now he is changing his mind because he is only going to NET $2000 on the deal after paying his closing costs & paying off the mortgage.

Seriously???

I have bought well over a dozen houses now, and never have had this happen before.

This is kind of unusual — the seller has an owner financed relationship with the person who has his name on the title, and the title company had us do the contract between one of my holding company’s (an LLC) and the person who lives in the property (he’s owner financing it from the guy on the title). We were going to do a double closing at the title company.

Anyway…would you guys sue over this?

My gut instinct says NO, as it’s too small of a sum to sue over and the guy who occupies the property has little to no assets of significance. And if he did wind up being forced to do the transaction, he could trash the place after we close on the deal - and then move out.

But part of me says…I should sue the mother f****r just to teach him a lesson. LOL.

What do you guys think?

2

Ask the seller what “would work”? If a thousand more would ‘work’ is that worth it to you?

I’m betting that he’ll be satisfied with just a few hundred more, and if that wrecks your deal, then you paid too much for it probably in the first place.

How much will you lose, if you don’t close?

Evidently nobody went through the numbers and explained what the seller would net. This should always be part of the negotiations. Otherwise, we get surprises.

However, we use the seller’s numbers to start with; such as his opinion of value. Then we deduct all the conventional/standard costs, including carrying costs, such as interest, taxes, insurance, hoa’s, utilities, and contract services…and see what’s left over after the loan balance is deducted. It’s ALWAYS less equity than the seller imagines, if there’s any equity left for the seller.

It's (fun) very interesting to me to watch a seller slump in his chair when it occurs to him that he'll have to pay money to sell his house, if he doesn't sell to me.
Some smart sellers will say, "Yeah, what carrying costs? I have to pay these no matter where I live." I say, "Yeah? And you'll still be living in this hell hole, too. Do you want to move, or not?" (I don't say it quite that way, but you get my point.)

It puts things into perspective… The seller may in fact pay all these costs regardless of where he lives, but if he goes with me, he’ll be paying those costs at his new address. Otherwise, he can continue living in his dirty, hell hole holding out for his price.

BTW, using the seller’s numbers takes the fight out of the negotiations. I just lead him to a conclusion that suits me (or not). It’s brutally honest without being brutish, but the results are irrefutable.

Don’t sue. Forget that. By the time, you get satisfaction for teaching the seller a lesson for screwing with you (which really, you screwed yourself by not “yellow padding” the seller during the negotiations), you’ll have lost 10k in profits, if not legal fees …only to “get even?”

Is that really enough upside here? You’ll probably win, but you’ll also prove to anyone that counts that you’re actually a loser with a scarcity mentality.

I think you’re MUCH better off, being perceived as a winner, by deliberately “losing” that fight.
:beer

Interesting post.

3

A deal is a deal, and he is not getting a dime more than we already agreed to. Only a wienie caves in to give more money after it’s in writing.

Negotiations happen before the contract goes into written form. You don’t renegotiate a car deal after you drive it off the lot, nor do you so with with a real estate transaction.

He originally said he didn’t care if he broke even, but now he’s actually getting money back - so we were on par / just fine with the numbers.

I just found out today that he’s shopping around for a better deal.

Here is what I am going to do. I am going to tell him that’s fine, I won’t buy the property since he’s not going to sell it to me. And actually I won’t sue him as-is. It’s not worth it since he has no money to pay me for a judgment.

However I may or may not warn him if that if he sells to anyone else right away I will create a clouded title by filing suit against him, the title company handling this transaction AND the seller (the latter two will have assets). I have seen it done before with someone who had an option on a property, and then the seller sold it to someone else out from underneath him. He won some significant money with ease. I will need to bounce this across my lawyer to see if warning someone about litigation is the correct thing to do, or not. But either way - that’s the non-emotional, intellectual way to go about this.

4

I had one seller try to back out on me…it was HUD. They f’d up the foreclosure…I found that out after I had it under contract. I was going to sue for specific performance, but this was a house that was going to take me several months of nights/weekends to rehab. So in the end I let it go b/c I re-thought all the effort it would take. It would have been a good deal financially, but it could’ve been in a better area and needed tons of work.
If this is really a good deal for you, I’d go ahead and threaten (and then follow thru) to sue for specific performance. You’re absolutely right…you don’t get to have seller’s remorse and then back out. That’s complete BS. If he was that upset, he should’ve never agreed to the contract in the first place. He did and it’s legally in place. Understand the concern about the guy trashing the place. Did you take pictures when you looked at it? It should be sold to you in the same condition. My thought is that the seller will fold at the threat of a lawsuit - especially if he can’t afford to fight it. You had to create a favorable situation for the seller to sign the contract. There’s no reason to throw him more boot just b/c he feels bad now.

5

Sue the bum if he doesn’t honour his word and agreement. I would if the contract was honourable and I was in the right. It’s not about the money for me, but if you have to pay for a lawyer, so does he and I don’t think he can afford it and might back down after realizing he’ll have even less money if he has to hire one. If you can’t afford a lawyer right now, that’s a different story, but nothing pisses me off more than a person who can’t be a man of their word and wastes my time hustling me like that. Just picture yourself as Samuel Jackson in Pulp Fiction–the path of the righteous is beset on all sides…

6

Man, you’re a tough bunch…! :shocked :biggrin

motivatedceo,

I see what you’re saying…

The problem with the lien, is that if it’s found to be invalid, because YOU failed to close, the seller can recover damages from you for creating a bogus defect in his title.

However, if you can prove that you were ready, willing and able to close, you could file a lis pendens against the property and effectively cloud the title just the same, until the seller either sold to you, or sued to remove the defect, or in the most strange and unusual case, bonded around your lien, somehow. It’s all about what you can prove about the failure to close.

Without arguing the merits of fighting the seller over him changing his mind… are you keeping your head? Are you focusing on making money or leveling the score…?

Assuming for the sake of argument that the deal still made sense after ‘giving up’ a thousand or two, why not remain focused on making money, rather than making a point? Just asking.

A deal isn’t always a deal, if the other party feels cheated, put in a corner, or otherwise taken advantage of… regardless of what reality is.

You probably know by now, that this stuff happens ALL of the time with residential retail sellers. Most of the time, it’s after we’ve negotiated a deal, and the seller starts talking to his friends/family about the deal, and they each second-guess the seller’s judgment and put doubt in the seller’s mind that they didn’t “get all they should.”

That’s another reason to have all the seller’s actual and “effective” decision makers present during your ‘yellow pad negotiations’ so everyone can walk the trail of negotiations together. Otherwise, the sellers friends/family will second-guess the trail, and get the seller’s greed glands all infected and pussy.

7

For $800 a month x however many months you’ll own it…

I’d at least let the atty send him a motivation letter.

that’s a lotta cash flow.

8

The threat of legal action worked. The seller caved in and I will be closing on the property soon. Whoo hoo!

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Hey CEO,
Glad Vinnie the Fish and his lead pipe did the trick… Next time you need some “motivation” for someone, let me know…