What are our rights regarding refusal to extend a purchase contract?
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What are our rights regarding refusal to extend a purchase contract?
We signed a purchase agreement to buy a property that was a short sale. Just before the original closing date (1015/10), the property was included in the seller’s bankruptcy. We agreed to extend the closing until 11/15/10. The property was not released from the bankruptcy court until 11/12/10 meaning that the closing could not take place. Our loan approval expired on 11/15/10 and we choose not to continue with the purchase based on added expenses that we will incur. Do we have the right to not agree to a further extension and get our earnest money back?
Asked on November 17, 2010 under Real Estate Law, Arizona
Answers:
SJZ, Member, New York Bar / FreeAdvice Contributing Attorney
Answered 13 years ago | Contributor
If there was a loan or financing contingency in your contract of sale, then you might well have an absolute right to get out of the sale and get the money back--it depends on exactly what the term is.
If you don't have that clause, you still have a good, just not quite as clear-cut, case. You would argue that the contract should be voided or rescinded (i.e. canceled) due to impossibility; that is, because of events beyond your personal control (the bankruptcy; the expiration of the loan), you could not, without fault to you, consummate the sale. The reason it's not quite as good is that if alll that was needed was an agreement to extend the time further, you'd be expected to make that; if the loan could be reinstated at low cost to you (e..g pay just another comparatively small fee), you might be expected to do that but be compensated by a credit vs. the purchase price. If the loan requires a complete new re-application, with the time and uncertainty involved, that's where the case for impossibility gets better. So impossibility depends on the circumstances.
Another possible ground for getting out of the contract and getting your money back would be fraud: IF you can show that the seller knew he'd be declaring bankruptcy when he contracted with you but did not disclose that fact, that might be fraud.
Given (presumably) how much is at stake, you may wish to retain an attorney to help you.
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