When the Seller Backs Out of a Signed Contract

Prices rise, a higher offer arrives, or the seller has second thoughts. Once a contract of sale has been signed by both sides, a New York seller cannot cancel for those reasons, and a buyer has more than one way to respond.

Before the contract is signed, there is no deal

First, the limit. In New York, an accepted offer is not a binding contract. A contract for the sale of real property must be in writing and signed (General Obligations Law § 5-703). Until that happens, either side can walk away, and a seller who takes a higher offer has done nothing unlawful.

Everything below assumes a fully signed contract.

Specific performance: making the sale happen

Because every parcel of real estate is considered unique, money is often not an adequate substitute for the property itself. A buyer can therefore sue for specific performance, a court order requiring the seller to complete the sale on the contract's terms.

To succeed, the buyer must show:

• a valid contract,
• that the buyer performed their own obligations under it,
• that the buyer was ready, willing, and able to close, which means actual proof of having the money or the financing to do so, and
• that the seller refused to perform without a valid reason.

The "able" part is where many of these cases are decided. A buyer whose mortgage commitment has lapsed, or who could not actually have funded the purchase on the closing date, will have difficulty.

The notice of pendency

A lawsuit alone does not stop the seller from selling to someone else. A notice of pendency, often called a lis pendens, does that work. It is filed with the county clerk when the action is started, and it puts every later buyer and lender on notice of the claim (CPLR 6501). As a practical matter, it makes the property very hard to sell or mortgage while the case is pending.

A notice of pendency is effective for three years. A court can extend it for good cause, but only if the extension is obtained before the three years run out; an expired notice cannot be revived (CPLR 6513). A court can also cancel one that was improperly filed (CPLR 6514).

Money instead of the house

A buyer who would prefer not to force the sale can seek the return of the down payment and money damages.

Read the contract carefully here. Standard New York residential contracts commonly limit what a buyer can recover when the seller is unable to deliver good title, as opposed to unwilling to close: typically the return of the down payment and the buyer's costs for the title search and survey. That limit protects a seller who in good faith cannot deliver title. A seller who simply refuses to close, or who created the title problem, is in a different position, and the buyer's other remedies remain available.

When a seller is allowed to cancel

Not every cancellation is wrongful. A seller may have the right to end the contract if:

• the buyer defaults, for example by failing to close on a valid time-of-the-essence date,
• a contingency in the contract is not satisfied and the contract allows cancellation, or
• the seller truly cannot clear a title defect and the contract permits cancelling on that ground.

Act quickly

The statute of limitations for breach of contract is six years (CPLR 213(2)), but waiting is a mistake. A buyer who delays may find the property sold to someone with no notice of the claim, and a court asked for specific performance will consider whether the buyer acted promptly.

If a seller is refusing to close:

1. Do not agree to cancel or accept the return of your down payment before getting advice. Taking the money back can be treated as ending the contract.
2. Keep your financing in place.
3. Have your attorney set a closing date in writing and document that you are ready to close.

If a seller is backing out of your contract, call the office. For more, see Real Estate and why an accepted offer is not a contract.