Monday, October 05, 2009

Trouble with Our House Purchase...

Regular readers remember that we bought a house last month. Signed contract, mortgage, removal of contingencies and a bunch of inspections. The works. Well, turns out we're not done yet. Here's the problem. When we bought the house we knew there was a tenant in it. In fact, our contract required the sellers to give us a signed agreement for the tenant to vacate before we removed our contingency. They didn't. Instead, they asked if they could give us this written agreement before we removed our financing contingency. We agreed, but even though we removed the financing contingency, we still don't have that written agreement with the tenant.

Worse. The sellers (or rather their agent, who is also their relative) finally came clean. Apparently, the tenants have a six month firm lease for the house. The lease ends at the end of February. Our contractual closing date? October 23... Worse still, the sellers and their agent simply don't understand (or are pretending not to understand) what they have done wrong. I met with the agent on Friday, and he said "we'll just cancel the deal". I explained that we have a firm contract, and cancelling is simply not something he can do. His response: "sue me"...

It's not quite as bad as it sounds (well, it's bad enough): the tenants are willing to vacate in December, if the sellers agree to pay two months of their rent as well as their moving expenses, for a grand total of about $7,000. The seller? He's willing to pay $3,000. Period. This weekend he is supposedly negotiating with the tenants and we should have a clearer picture on Monday.

Of course, we could supposedly get this resolved by simply agreeing to pay the difference between the tenants' demands and the amount the sellers are willing to pay. However, the prospect of doing that gives me serious heartburn. We clearly have a very strong legal case against the sellers and could sue them for a lot of money. We could also file ethical complaints against the sellers' agent for misleading us. These guys knowingly entered into a binding agreement to sell us the house, while they had a conflicting contract with the tenants that would not allow them to close the deal. They did this without disclosure and without including a sellers' contingency in the contract.

On the flip side, this is a million dollar house (it's the San Francisco Bay Area, people). Is it really worth letting a million dollar deal collapse because of a $4,000? Yes, $4,000 is a lot of money and the sellers are trying to cheat us and increase our buying price by trying to make us pay for their dishonesty. The question is: should I let the deal fall through and go to court? Or should we just suck it up and get the house?

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17 comments:

Anonymous said...

dont let pride or retaliation cloud your decision.

and no matter what you decide, report the realtor to the state board of realtors. he deserves a complaint b/c he obviously is not the most ethical person on the planet.

Stephane said...

It may be worth it to get a lawyer to send an aggressive letter to the seller and agent. Also make sure to indicate that you are proceeding with reporting the real estate agent.
For a 2-3 lawyer hours (~$1000) , you might scare them into doing the right thing. Most people get freaked out when lawyers are getting involved - it is all about bluffing.

Stephane (not Stephanie ;-))

Anonymous said...

It sounds like you have a contingency in the contract but you're not willing to exercise it. It doesn't matter what they told you they were planning to do. For whatever reason they didn't and now you're asking for a different remedy than the one specified in the contract (canceling the deal).

Shadox said...

Anonymous I - check on that. I am not going to let this guy off the hook.

Stephane - (notice I got the name right). Believe me, I thought about the lawyer thing, but for now I would like to avoid additional costs, especially since the difference appears to be pretty small (money-wise).

Anonymous II - that's not the way these things work. In a contract to buy a house, each party specifies their own contingencies. Those describe the only circumstances under which that party can walk away from the deal. Otherwise, the contract is binding. The seller did not include a contingency relating to the tenant. In fact, he included no contingencies at all. We are well within our rights to insist on performance of the contract and to sue them if they fail to close. That's how the system works.

Kim Stiens said...

I don't think you should do it. I would take a moral position... the only way the agent isn't going to do something like that again is if it bites him in the ass. For every time anyone trades justice for expedience, especially guys like you who can afford to do the right thing, a "little guy" out there is being screwed in the same way and can't do anything about it.

Shadox said...

Kim - I truly do understand your perspective, and yes, you are right, we can afford to do something about this. In fact, I fully intend to complain against the agent and to do my best to give him what he deserves. However, my first and foremost duty is to my family. I have to make sure that we don't lose the best house we've seen in several months of searching because I decide to take a principled position.

I can do the deal and make sure that the authorities hear about this unethical behavior at the same time. Look - I have serious heartburn about this - but at the end of the day, allowing the deal to collapse over a relatively small amount is not the rational position to take. Or at least that's what I keep telling myself whenever my blood pressure rises at the sight of this cheating idiot. Hmmm.

Kim Stiens said...

Yeah, I suppose I see your point. And you're right... you're not letting them off scott free. OK, I can support that.

frugal zeitgeist said...

My first inclination is to lawyer up, but that's a expensive, aggressive step and ultimately counterproductive if this is the house you really, really want. If you've made that committment to the house, you'll be better off paying the difference and considering this an expensive lesson learned about lifting contingencies.

Anonymous said...

From Sanjeev:

I have been a regular reader of your blog. Though I have no right or reason to say it, but, here I am with my thoughts.

First of all, you should not pay the different from your pocket. The seller knows that you like the house and thus have come so far in the process. Also, he is not selling it at a price that he would have liked to. So, he would like you to pay off the difference. I hope you did add additional clauses to ensure that the seller would have the house professionally cleaned, carpets steam cleaned, a walk-in arranged about a week before closing and any issues pending then would need to be resolved by closing (get a copy of the receipts as proof of work done). The reason behind bringing this up is that you have got your inspection done and there is still time before the closing and who knows what may happen based on the seller & tenants' feelings. Once you close, you are on your own, even for the damages or mismanagement done by the seller.

Second and the last thing I would like to add is that you should seriously consider the house purchase. I am sure you would have done that. But, I really feel that this country has a lot more obsession with home ownership. You may think that you have covered all bases, but, when you move in, you would know how grossly you underestimated everything (its not just money, it also about the time & hassle that one has to put up with). So, may be, you should think about it once more. Renting is always a better option unless one has accumulated enough money & experience.

My recommendation for home ownership is that one should pay at least 50% of what you need to buy a home. Also, before buying a house, one should rent a similar house for a year and get the feel. It is a pretty big decision for most of us, and one should be very careful.

All the best.

Shadox said...

Frugal - lawyering up is expensive and counter-productive. Unfortunately, the lesson here is not about lifting contingencies - we have not problem getting out of the contract, we just want the house. The lesson is: don't do business with douche bags. Unfortunately, those are well camouflaged.

Anonymous - I concede that buying a house is not a financially sound decision. In fact, I have written many posts on the subject myself. This is an emotional decision. From my perspective I don't expect to make money on the house (although that would be nice), I am hoping to break even. BTW - thanks for being a reader!

Anonymous said...

According to your contract the seller was supposed to give you a signed statement from the tenant that they would move out or you didn't have to buy the house. There is no way the seller can legally force the tenant to move out early, so they just have to ask the tenant to vacate and if the tenant says no then you don't have to buy the house. The contract certainly doesn't require the seller to pay whatever unreasonable amount of money the tenant asks for.

Shadox said...

Anon - the contract does not require the seller to pay whatever the tenant is asking for. All the contract requires is for the seller to deliver a signed agreement with the tenant to vacate prior to closing, and then to deliver the house in vacant and clean condition 5 days prior to actual closing.

As far an the sales contract is concerned, if the seller fails to do either of these things he is in breach.

My point is, the seller knowingly entered into a conflicting agreement which he could not consummate. Legally, we have a very solid case to sue him, and I will, but I would prefer to have the house instead.

Erin said...

If you want the house, pay the money. You'll be mad about it but you'll have the house.

We are in a super annoying drawn out closing situation where we are the sellers. The buyers keep asking for MORE, MORE, MORE and we could say no legally for sure. We are well past ANY contingencies but we want to sell the house and its worth more to us to sell it than to bicker over small sums that are less than one mortgage payment. It hurts and makes me mad but we are closing on Monday so it was all worth it, right?

Shadox said...

Funny - you have the exact opposite problem to ours. It just goes to show you - there is no shortage of dishonest people...

Helen said...

I hate to suggest it, but couldn't you evict the tenants? The contract is between the tenants and the former owner -- not you. In the process of buying the house you are not agreeing to keep the tenants. Doesn't that end their contract? They would need some notice -- the length of the notice should be specified in their lease. Of course every state has different landlord/tenant laws, and California is more different than most :) .

Anonymous said...

Buy the house, you have an emotional investment already. Close and the $7K should come from the sellers and/or agent to get you into the house they wrote the contract for. It is their loss. IF you pay any of that to get into the house, you have a right for a small claims suit, the max amount depending on your state. It can be self done and there may be some justice to your anger. Take action and have both (home and possible compensation).

Anonymous said...

Buy the house, you have an emotional investment already. Close and the $7K should come from the sellers and/or agent to get you into the house they wrote the contract for. It is their loss. IF you pay any of that to get into the house, you have a right for a small claims suit, the max amount depending on your state. It can be self done and there may be some justice to your anger. Take action and have both (home and possible compensation).