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Can Seller Back Out If Closing Date Not Met?


house for sale with closing process coming up

While the seller can cancel, it’s not always advisable for every situation.

Delays in the close of escrow can be caused by a variety of factors. An extended closing date can be necessary due to unexpected reasons such as a low appraisal or lender issues. Most often, the delays are caused by poor communication between the closing agent and the title company.

The process of obtaining a home loan is also extremely scrutinized. Also, things from their past, including short sales, foreclosures, and judgments in other states, have a way of resurfacing. In most cases, the reason for the delay can be directly attributed to the lender. 

In this article, you’ll learn what you can do should a buyer miss the closing. As well as what to expect for a delayed closing penalty.

Can Seller Back Out If Closing Date Not Met?

A buyer who is unable to close escrow on time can cause a variety of issues. The primary flaw in purchase contracts is that they contain both an acceptance and a closing date. Missing the closing date will, at a minimum, result in the purchase contract expiring. As soon as the purchase agreement expires, the parties are no longer engaged in an active agreement. Typically, the closing date is extended; however, the sellers might disagree.

Yes – if the closing date is missed, the seller can cancel at will. However, there are many things to consider before deciding to end the deal.

If there are no other interested parties, the seller may be more willing to grant an extension. But missing the closing date on a hot property gives the seller a greater incentive to entertain other offers.

Consider Your Situation

Sellers should consider all avenues before deciding to cancel or extend a contract. 

 A seller might offer an extension to a buyer whose financing is almost complete, pending just a few documents. Because starting over, relisting the house, finding a buyer, and hoping to obtain financing is an expensive exercise. However, there is a possibility other lenders will find the same reasons to decline the loan, and the process could take a while if the funding falls through altogether. Selling to a new buyer might be a better choice.

It is possible that the seller will face an extended delay if the sale is contingent on the buyer’s house selling, but the buyer hasn’t yet received any offers. Sellers willing to work with buyers who have already sold their houses and whose closing date is imminent are at a much better risk.

A missed closing date without contingencies may result in a cancellation of the sale as a penalty. One penalty for missing a closing date might be to pay the seller a portion of her mortgage to compensate the seller for staying in the property longer than expected.

Consider Other Options

The closing date specified in a contract is legally binding. It is common practice for sellers to cancel sales if the buyer is not ready to close by that date. The buyer and seller can both benefit from some alternatives to canceling the contract.

The seller may grant the buyer an extension of time. The buyer can take the time necessary to address circumstances that delay the closing by setting a new date. Even though the seller can offer an extension at no cost, he or she may request a fee for the inconvenience of waiting each day. If both the buyer and seller agree, extending the closing escrow can be a straightforward process. In most cases, the seller asks the buyer to sign an extension of time addendum and figures out why the buyer needs more time.

Depending on the original contract language, the buyer may lose earnest money and other expenses already paid if they accept the fees or let the deal fail.

Early occupancy is another solution.  A seller who has already moved out or is getting ready to move out can offer to rent the property to the buyer. According to the contract, the buyer would move into the home and pay the seller rent until the closing was completed.

What If I Want To Cancel?

As a seller, if you do decide to cancel and move on with another buyer, you’ll want to cancel appropriately.

Sellers in California can issue a Notice to Perform to a buyer within 48 hours of the closing date if a buyer fails to honor deadlines in the sale contract. Before the contract is canceled, a buyer is given 48 hours to address the noted issues. As a result, if the closing of escrow appears uncertain and the seller is ready to consider a backup offer, the Notice to Perform could be issued 48 hours before escrow is set to close. Sellers could accept backup offers if the buyer is unable to complete the purchase.

Your real estate agent can help with delay penalties, and proper notice, per your state’s laws.

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