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Backing out before closing?

Author: Jessica Bennet
Community Mentor
Ask Jessica
Posted on: 25th Feb, 2008 10:27am
Taking out a mortgage is one of the biggest possible decisions of one’s life. There are various factors which you need to consider and even check out your affordability. However, what if an emergency arises just before the mortgage closing and you start thinking “can I back out of a home purchase before closing"? Let’s take a look as to what you may face:

Are you bound by contract before closing?

Well, unless you sign the closing documents, you’re not bound by any kind of contract. So, it is quite easy to call up your lender and let him know that you won’t go ahead with the deal.

    What are the main reasons for canceling the deal?

    Here are some of the reasons which normally lead to cancellation of mortgage deals before closing:

  • If anything changed on your approval with the lender, then you may cancel the mortgage deal.

  • If the seller has misled you regarding the property, then the deal can be canceled.

  • If you have a contingency for the inspection and the inspection was bad, then you may cancel the deal.

  • However, developing a cold feet or losing interest in home buying won’t be considered as reasons for canceling the deal.

    What can happen if you cancel the mortgage deal?

    Here are some consequences that you may face if you cancel the mortgage deal:

  • You may lose the earnest money deposit.

  • If you have engaged a legal counsel, then you may be billed for the work done.

  • If you were working with a realtor, then you may be billed for his/her services as well.

  • It should be noted here that when you accept the purchase contract, the seller loses the right to market the property or accept other purchase contracts. So, if you’re thinking “can I back out of a home purchase before closing", then you should also keep the consequences in mind.

    However, under the Truth-In-Lending Act, a borrower has the right (Right of Rescission) to withdraw from the deal within 3 days after closing.
Posted on: 25th Feb, 2008 10:27 am
Hello, I was wondering what a person has to do to back out of a loan before closing. We put earnest money down and signed papers, but do not clos until next month. I doubt we will back out but some things have come up and just wanted to know where I stood.
Thanks, Scott
What things have come up?

If you mean backing out of the purchase contract... then it depends on what stipulations are in the contract itself. You are never bound to a mortgage until closing, not a second sooner. However you do have an obligation to a purchase contract depending on the situation.

Please clarify exactly what it is that has changed to make you want out...and I will try to help you from there.
Posted on: 25th Feb, 2008 01:19 pm
Yes Eric, he's not bound until the loan closing occurs.

Well Sahargen, you may read through the previous discussions on backing out prior to closing at:

Posted on: 25th Feb, 2008 09:11 pm
Hi Scott,

Was it something that changed on your approval with the lender? If so you can use that to back out of the contract. If not, there are usually enough stipulations in the contract to get your earnest money back if you decide to back out.
Posted on: 25th Feb, 2008 09:24 pm
you may face the loss of your earnest money deposit. if you have engaged legal counsel in connection with the purchase, you may be billed for the work done. if you have been working with a realtor, you may be billed for services as well.

my rationale for all of the above is a deal that fell through last summer. my borrowers (immature first-timers) backed out 4 days prior to the scheduled closing date. obviously, we loan officers suffer and cannot bill for services rendered. their attorney and realtor both planned (don't know if they followed through) to bill them for their services. i honestly don't know if they forfeited the earnest money, but that was, of course, possible per the contract.

amazingly enough, the property in question popped up again with a new borrower for me in the fall. so even though i lost the deal with my original borrowers, i ended up closing a loan on that house with different borrowers in december.

bottom line: if you back out of your deal, be aware of the possible consequences.
Posted on: 26th Feb, 2008 07:08 am
Hi everybody, Thanks for the replies!
The reason for this post is kinda complicated. We aren't having any problems with the lender. The problem is a combination of cold feet by me and we are having a few minor issues with the sellers. I don't want to get into all the details on here but I appreciate the feedback. I was just looking to figure out my options...I'm 98% sure that we will go through with the sell...but there is that 2%..... Thanks again, Scott
Posted on: 26th Feb, 2008 08:18 am
glad to help, scott.

and that is precisely what the intent of this forum is, anyway.
Posted on: 26th Feb, 2008 08:20 am
If it is cold feet.... that is not a reason that the law protects.

If the seller has misled you or you have a contingency for the inspection and the inspection was bad... then you have a way out.

But again if you have a purchase contract and you have no legitimate reason to back out besides..."We changed our minds" ... be prepared to lose your earnest money at minimum (as stated above). The sellers could force you to purchase it (very unlikely I would assume).

What it comes down to is this...

When you have an accepted purchase contract.... the seller can no longer market or accept contracts from anyone else... so while you are "deciding" they could be selling to someone else. Since you have a contract the "decision" has already been made... the house is yours if it closes.

So you see it isn't like going shopping or buying a car... if you tell the car dealer you want to think about it and someone else comes in... they sell the car to them... in real estate the seller can't just change the deal and sell to the new buyer... they have to wait for you.

Let me know if you have any questions. P.S. I am not trying to give you a lecture although that is what it is. You have an obligation to the seller and vice versa them to you.
Posted on: 26th Feb, 2008 09:37 am
eric, plain speaking is what is needed in life in 2008. we have all been coddled, and people are afraid to confront issues on a continuing basis. this has caused an attitude of entitlement with many people. as soon as someone steps out and decides to buy a home, it seems, that home should be 3000 square feet with 3 or 4 bedrooms, 2 baths or more, 3-car garage, etc.

"starter" homes are now seen as decrepit and meant only for the downtrodden, it seems. even the normal first-time homebuyer who has little, if any, money and (perhaps) challenges on credit seems to think there is an entitlement to 100% financing at the lowest rate ever offered.

thank you for your frankness and not-so-stern lecture here. it is so necessary these days.
Posted on: 26th Feb, 2008 11:04 am
i was all ready to but this house. we agreed on a 12pm closing. then the seller said they couldn't be out on time. this made me mad because they have known for two months. then the day before closing the seller said they didn't have enough for closing. this infuriated me. so i cancelled the moving extended my apartment lease changed back my address. then later that night i found out her agent was willing to lend her the money. by this point i had enough. i don't want to go through with it now. but her agent has informed ne that if i don't go through with it i could face legal issues
Posted on: 30th Apr, 2009 08:59 pm
i understand your frustration with this process. unfortunately, in the last year or two we've seen this scenario pop up a lot. sellers seem to forget they owe a certain amount, and they then either forget to notify or simply neglect to notify their agents, their lawyers, etc.

if this is a home that you really wanted, i'd suggest you reconsider backing out. speak with your lawyer, to see what penalties you might incur at this time by doing that, also. you don't need to lose money in this process if you can help it, but of course your piece of mind and happiness is paramount.
Posted on: 01st May, 2009 06:59 am
Seller backed out after we signed her counteroffer on a property. Is this legal. She signed we signed we were set to go. I knew purhcasing a home would be difficult but man has it been a ride!
Posted on: 31st May, 2009 07:27 pm
christina, have you engaged an attorney to assist you yet? you may want to discuss this with one in any event.
Posted on: 01st Jun, 2009 06:40 am
Yes we had the attorneys from century 21 speak to the lady and thank goodness it has all been solved. I guess aparently after she counteroffered with us a friend of hers offered to purchase her home and legally she cant do that - is what we were told... thank you for your response!
Posted on: 01st Jun, 2009 10:48 am
thank you for reporting back to us, christina. your experience may very well help someone else in a similar situation, and that's, of course, what we hope for with all of the information sent back and forth in this community.

i'm happy to know the situation got settled in your favor.
Posted on: 01st Jun, 2009 10:54 am
is marriage separation a matter/reason the law protects for backing out of purchasing a home prior to closing?
Posted on: 20th Oct, 2009 02:15 pm
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