So What Do I Do When the Seller Refuses To Close?

Since this scenario has arisen for me in the past on a couple of really good deals with a lot of income potential, I thought I would take the time to explain to you how to deal with this kind of problem.

Sometimes you will put a property under contract with a seller, get all the way through the closing process right up to the time of closing and for some reason the seller changes their mind and decides not to sell to you. While this is not a usual occurrence if you are following through correctly with your deals, it does arise occasionally and you need to be prepared.

There are a lot of reasons this situation can occur. One main reason is that the seller may have gotten a better offer on the property after putting it under contract with you. Or maybe a relative or friend tells them they didn’t sell for enough money or maybe they just get cold feet and decide not to sell. None of these are a good reason for them not to sell to you, especially when you have a valid contract with your seller and have followed through as you are required to within the confines of the contract. 

Now I will share one caveat that I do employ in my business. If a seller contacts me within a day or two of signing a contract with me on the sale of their home and they decide that they really don’t want to sell (usually it’s because there are “heart strings” attached to the home) I will allow the seller to bow out of the sale. This has happened in the past and I usually ended up buying the property weeks or months later anyway, and it works out to be a win- win for all involved. So you need to look at your deals on a case by case basis.

Hopefully during the time between putting the property under contract and the closing, you have followed all the steps necessary to close, such as submitting your deposit, having inspections done in a timely manner, providing proof of funds and either followed up with the seller regularly or had your title agent or attorney following up with the seller to make sure they are performing on the requirements of the contract. If you follow up regularly with sellers during the closing process, this will significantly reduce the seller’s anxieties and you will be much more likely to close your deals, especially if you are dealing with out of town or out of state sellers.

Still, sometimes a scenario will come up and even though you have followed through, the seller still decides not to sell the property to you. So what do you do next?

I will mention here that if the property is the seller’s homesteaded property, there isn’t much you can do about it. The law will not force the seller to go through with the contract and sell their homestead. However, if the property is not the seller’s homesteaded property, there are definitely remedies you can implement to get your deal closed, especially if there is a lot of profit in it for you.

The first thing I do if I smell trouble with a deal is to file an “affidavit and memorandum of agreement concerning real estate” against the property, thus clouding the title to the property. This can prevent the seller from selling the property to anyone else. This does not work in every state. Always check with your attorney before filing any paperwork with the courts. There have actually been instances where I had a property under contract with a seller and then the seller tried to sell the property again to someone else who was unaware that a contract already existed. In my state of Florida, the memorandum is a great way to stop this from happening.

The next thing I will do immediately is to let the seller know that if they do not follow through on their end of the deal, I will immediately file suit for non-performance under the contract. I remind the seller that this will end up costing them a lot more money and significantly reduce the amount they would receive from the sale of the property. Once again, this will not work if the property is the homestead of the seller.

In order to file a case for non-performance under a contract, you must have followed through on your end of the deal by having your documents signed and your money in place, ready to close the deal on or before the closing date. If your seller still refuses to close, you will need to employ the services of a real estate attorney who can handle this matter for you. If you close with a real estate attorney or a title company who has a real estate attorney on staff, they will be able to handle this situation for you.

The first thing the attorney will do is to file a lis pendens on the property and cloud title to the property until the situation is decided by a judge. At this point they will probably notify the seller by letter, giving them the opportunity to remedy the situation first without any further legal action. Once the title has been clouded, this prevents the seller from doing anything with the property until the current situation is remedied.

If the seller still will not close, the next thing the attorney will do for you is to file suit for non-performance under the contract. Just a note here; anytime I deal with a seller, I give them a copy of the signed contracts and I keep the originals or give them to the attorney who is handling the closing for me. It is important to have the original contracts in your possession.

Even though this type of suit may take some time, if you have followed through on your end of the deal and “performed” as required under the terms of the contract, you will almost always win your case. I will also mention here that I have been lucky enough so far that I have never had to follow through with one of these cases. The threat of a lawsuit either by me or by my attorney has been enough to push the seller to closing.

Let me also mention here that I would never do anything to purposely take advantage of any seller. There are times however that you need to stand your ground and get the closing done, especially when you have a valid contract with a seller and you have upheld your end of the deal. Also keep in mind that as you are moving toward a closing with a seller, you may be incurring costs such as a title search, a home inspection, a survey, pest inspection, etc. and you need to either close on the deal or be reimbursed for your expenses.

This is one of those scenarios they don’t usually cover in the real estate seminars so I thought I would take the time to share this important piece of information with you. Always make sure you use a Real Estate Attorney or a Title Company with an attorney on staff to handle your closings for you. This makes it so much easier to handle any type of situation should it arise.