Buyers, sellers don't always have to provide reason for canceling a deal
A key court ruling in New York may allow buyers and sellers nationwide who have an attorney-review provision in their sales contract to nix an agreed-upon sale for any reason whatsoever - or for none at all.
Q. We made an offer to purchase a house on a recent Friday, and included a contingency that would allow our attorney to cancel the deal within three business days upon her review of the contract. The sellers accepted. We then had second thoughts about buying the home over the weekend, so we called our attorney on Monday morning and told her to cancel. She called the sellers, and their agent immediately to notify them of the cancellation and hand-delivered a written notice later that afternoon. Nonetheless, the sellers are now suing us for breach of contract and are trying to force us to buy the house that we no longer want. What can we do?
A. You probably don't have to worry much about losing the lawsuit, thanks to a key ruling that was made last year by a court in New York that favored the buyers in a case that was remarkably similar to the one you now face.
The case (Moran v. Erk, N.Y. Court of Appeals, 2008) can be cited - or should at least be researched - by would-be buyers in all 50 states as part of their defense against such claims. The Erks had agreed to purchase a home for $505,000 and, like you, included a contingency that allowed the attorney for either party to cancel the sale within three business days after the offer was accepted.
The Erks decided to void the agreement, and their lawyer canceled it within the required time frame.
The sellers eventually sold the home for a lot less than the Erks had offered, but then sued to recover the difference between the amount the Erks had originally agreed to pay and the price the property sold for later.
Though the attorney-review clause that both parties had accepted did not require either lawyer to provide a specific reason to cancel the transaction, the sellers claimed that the provision was limited by an "implied covenant" of good faith and fair dealing - which they said required the lawyer for the Erks to provide a legitimate reason for canceling the sale. The lawyer for the Erks hadn't provided such a reason: The trial court and then a lower appellate court subsequently ruled in the sellers' favor.
The case then went to the New York Court of Appeals, which instead decided in favor of the Erks and reversed the earlier rulings. Though the decision was lengthy and filled with complicated legal concepts, it basically boiled down to the fact that there was nothing in the attorney-review clause that specifically required the Erks' lawyer to disclose the reason why they decided to void the sales contract. Notice of the cancellation was provided to the sellers within the three-day time frame, the court noted, so the buyers were off the hook.
The court also added that forcing the Erks to provide a reason for the cancellation could lead to countless other suits when either a buyer or seller exercised their attorney-review privilege to cancel a sale, and might even force judges to investigate confidential communications between a client and the lawyer - the latter of which would breach the long-standing judicial policy that protects the privacy of such discussions and correspondence.
You obviously need to consult with a good real estate attorney of your own to combat the lawsuit that has been filed against you, if you haven't already done so. Make sure that the lawyer is familiar with the ruling in the recent New York case, and ask the judge to reimburse you for legal expenses and other court costs if the lawsuit eventually makes it to trial.
Q. What is a "walk up" apartment?
A. It's an apartment building of two stories or more that does not have an elevator, which means tenants must walk up the stairs to get to their rental unit.
Q. We recently bought a home with a 30-year, fixed-rate loan of $220,000 at 5.9 percent. Our monthly payment for principal and interest is $1,305. If we add a $100 "principal only" payment each month, how much would we save in finance charges and how much sooner would we pay the loan off?
A. If you simply keep the $1,305 monthly repayment schedule that the bank provided, you will pay $249,764 in finance charges over the next 30 years in addition to the $220,000 that you borrowed.
Adding $100 to each monthly payment would reduce your interest charges to $200,887 and allow you to retire the debt in exactly 25 years, because the loan's outstanding balance would be reduced at a faster rate. In other words, the $100 "extra" each month would save you $48,877 in future interest and allow you to become mortgage-free a full five years sooner.
• For a copy of the booklet "Straight Talk About Living Trusts," send $4 and a self-addressed, stamped envelope to David Myers/Trust, P.O. Box 2960, Culver City, CA 90231-2960.
© 2009, Cowles Syndicate Inc.