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updated: 3/8/2011 4:30 PM

Attorney review period allows both parties to back out of sale

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Q. We signed a contract to sell our home last week. This week, our attorney gets a letter from the buyer's attorney telling us she disapproves of the contract, that the contract is terminated and demanding the return of the buyer's earnest money. We tried to find out what went wrong but neither the buyer nor her agent would return our calls.

Our agent just found out this same buyer put an offer in on a different house over the weekend, not far from our home. It appears she found something she liked better and then canceled our deal.

This doesn't seem fair. If we got a better offer over the weekend, we couldn't cancel the deal. Why can she?

A. Actually, you could have canceled the deal over the weekend, presuming you were within the (generally) five business day attorney approval period.

The courts give great latitude to the powers granted attorneys under the attorney review period. The general premise is that so long as the attorney/client acts in good faith, he or she may request virtually any modification to the contract, with the exception of price. This power extends to the ability of the attorney to disapprove the contract and cancel the transaction.

Now, what constitutes good faith? Although there is no strict definition that I am aware of, one could certainly argue lack of good faith when a purchaser cancels your deal and immediately purchases another property in the same neighborhood without any identifiable reason.

If you have not released the earnest money, you could demand the earnest money be retained by the listing agent until the purchaser or her attorney offers a reason for terminating the transaction. Unfortunately, this will probably not accomplish anything.

Most likely, financing and home inspection contingencies were included in the contract and the purchaser could exit the transaction under either of those. My advice, shrug it off and relist the property.

Q. I signed a contract to buy a "short sale" property. The contract contained a paragraph that said I must close within 21 days of the day the short sale lender approves the contract. If I didn't close within 21 days, I would be penalized $100 per day for each day after the 21 days until the property closed.

My mortgage company would not process my loan application until the short sale was approved. Now that the sale is approved, my mortgage company is telling me it will be at least 30 days until they will be ready to close, maybe longer. I am looking at $1,000 or more in penalties. Any ideas on how I can get around this?

A. Obviously, you or your attorney (if you have one) should have noticed this provision at the time the contract was executed. A call to your lender would have made you realize that you needed to amend that provision.

I have been successful on occasion in getting short sale lenders to waive penalty provisions. Much depends on the particular case, how long the purchaser has waited for the short sale lender to approve the contract and any other extenuating circumstances. It certainly is worth inquiring about. If you could get a letter from your lender indicating the loan has been applied for and they expect approval within 30 days, offer that to the short sale lender. It might help.

• Send your questions to attorney Tom Resnick, 345 N. Quentin Road, Palatine, IL 60067, by e-mail to tdr100@hotmail.com or call (847) 359-8983.

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