Can a Seller Cancel a Purchase Contract?

Question: We made an offer on a home in Arcadia. In order to give the seller time to move to another home, there was a 90-day close of escrow. We deposited $5,000 earnest money in escrow. We are now ready to close escrow, but the seller has changed his mind and no longer wants to sell the home to us. The reason that the seller gave is that he has not found another home yet. Our real estate agent said that the real reason is that the seller wants more money for the home because a comparable home in this Arcadia neighborhood just sold for $150,000 more than the appraisal of our home. The seller wants us to accept the return of the $5,000 earnest money and cancel the sale of the home. Do we have to agree to a cancellation of the purchase contract with the return of our $5,000 earnest money?

Answer: No. You do not have to accept the cancellation of the purchase contract and the return of the $5,000 earnest money. You have the right to file a lawsuit to have a judge order specific performance by the seller of the purchase contract, i.e., the judge would order the seller to sign a deed to the home to you. At the time that you file the lawsuit, a Notice of Lis Pendens (Latin for “pending litigation”) should be recorded to prevent the seller from selling the home to another buyer for a higher price, e.g., $150,000 more than your purchase contract. Alternatively, if you no longer want the home, you could file a lawsuit against the seller for the amount of the difference between your purchase contract price and the fair market value of the home at the time of the scheduled closing of escrow, e.g., the lawsuit would be for $150,000 in damages if the value of the home 90 days later is $150,000 more than your purchase contract price.

Note: If you believe that your seller may have already signed a contract to sell the home to another buyer for a $150,000 higher price, you should immediately file the lawsuit and record the Notice of Lis Pendens the same day to stop the closing of that sale. After your seller receives a copy of the recorded Notice of Lis Pendens, your seller may agree to close escrow to you on your original purchase contract.

Here is a related article on a buyer’s requirement to also pursue mediation under the AAR form purchase contract.