Failed Closings can cause a Dilemma for Sellers
By Gary Isom, Executive Director of the Arkansas Real Estate Commission
In a real estate transaction, a difficult situation for the seller occurs when a buyer fails or refuses to close pursuant to the terms of the sales contract. These scenarios may vary from a buyer who has disappeared completely to one who has just gotten cold feet. The usual response to this dilemma is that surely the contract is null and void if the buyer has failed to close on the transaction pursuant to the terms of the agreement. Well, maybe “yes”, but, maybe “no”.
For a real estate broker, the ideal solution is to obtain a Termination of Contract signed by both the buyer and seller. The Arkansas Realtors® Association (ARA) has a standard termination form used specifically for this purpose. Unfortunately, there are times when the broker can’t obtain the buyer’s signature agreeing to terminate the contract.
Experienced real estate brokers are often of the opinion that when a buyer wants to back out, the best thing is to let them go and put the property back on the market. Unfortunately, it’s not that simple when the buyer has not signed an agreement to terminate.
In a previous interview I asked attorney Timothy W. Grooms of Quattlebaum, Grooms and Tull PLLC., who serves as legal counsel for the Arkansas Realtors® Association to discuss a court case involving such a situation. Below is Mr. Groom’s response:
“A few years ago there was a Circuit Court case involving a contract that listed several timeframes, i.e. financing application, inspections and, most importantly, a closing date. The contract was on the standard ARA form which included a “time is of the essence” provision.
In law school, you are taught a few “magic” phrases with legal significance. The “time is of the essence” phrase matches that definition and is supposed to convert all timelines in a contract into “hard” deadlines. Absent the “time is of the essence” phrase, dates in contracts may be viewed as a “target” and “reasonable compliance” often suffices. But, perhaps we should all realize Judges are human beings and often are faced with situations where enforcement of the strict letter of the law would be very harsh.
For example, in the case Gary asks about, an elderly lady entered into a real estate contract and, shortly thereafter, was stricken with cancer and obtained treatment in Houston, Texas. While undergoing treatment and recovery, all contract deadlines expired by months and the selling firm was unable to contact the buyer.
The Seller made a decision to put the property back on the market and obtained a contract from “buyer #2” within a short time. Prior to closing, the elderly lady (“Buyer #1”) returned to Arkansas and called her agent to inquire about closing on “her dream home that she has thought about throughout her ordeal.”
To cut the story short, an Arkansas judge recognized the hardship of strictly enforcing the “time is of the essence” provision and ordered that Buyer #1 was entitled to close on the property, leaving “Buyer #2” with a damage claim against the Seller and, yes, you guessed it, the listing and selling firms for failure to disclose the existence of the prior contract.
After this decision, ARA strongly encourages a buyer and seller to terminate the contract in writing because, absent: (i) written termination, or (ii) a Court order terminating a contract, nothing is certain and any seller who chooses to put a property back on the market after a failure by a Buyer to close, faces uncertainty and risk and should not do so without advice from an Arkansas licensed attorney.”
Real estate brokers often call attorney Grooms or the Real Estate Commission when the buyer’s signature cannot be obtained to terminate the contract. As one would expect, their seller wants to put the property back on the market immediately. This is where I’m going to do our real estate brokers a service by telling all sellers that your broker cannot advise you whether to put your property back on the market. That’s far outside the scope of your real estate broker’s authority and expertise.
So, what’s a seller to do in this situation? Contact your attorney. Not the broker’s attorney, your attorney. If your attorney advises that your property can be put back on the market, instruct your listing broker to do so. To protect themselves, real estate brokers should ask their sellers to furnish a copy of a letter to that effect from their attorney. Please don’t think your real estate broker is “over the top” with such a request. Most brokers in Arkansas know about the case summarized. We can’t blame them for proceeding with caution in these situations.
As an Arkansas consumer you are encouraged to call the Real Estate Commission when you have concerns or questions about real estate transactions involving real estate brokers or salespersons. We will often ask whether you’ve discussed the situation with the Principal Broker or an Executive Broker of the firm. It’s quite possible that your issue can be resolved at this level without having to file a formal complaint with our office. We prefer to give our supervising brokers the opportunity to resolve any problems before we get involved. Those brokers and salespersons that have chosen a career in real estate will be as determined to make you a satisfied customer as we are to protect your interest as a consumer.
For assistance or more information, contact the Real Estate Commission at 501-683-8010.
House to House is distributed weekly by the Arkansas REALTORS® Association. For more information on homeownership in Arkansas, readers may visit www.ArkansasRealtors.com.