Can the Buyer Cancel Escrow?
House hunting, making an offer, and having the offer accepted can be a whirlwind of energy and excitement. But once the escrow process starts and reality sets in, some buyers begin to have doubts or “what ifs” that leave them second-guessing their decision. Can the buyer cancel escrow?
When a buyer wants to cancel escrow, tensions are high. The buyer may be feeling regretful about their decision to move forward into a contract. They may be worried about the financial hit that canceling escrow can mean. For the seller, they may feel taken advantage of, and frustrated that they have to start back at square one in the selling process. Some may even feel angry and litigious as a way of protecting themselves.
The big risk of canceling escrow on the buyer’s part is the financial loss that may follow. Under Florida law, buyers (and sellers) can cancel a real estate contract, and therefore escrow, under very specific circumstances. If these conditions are not the reason for the cancellation, then buyers who choose to walk away will do so without their earnest money deposit, which can be anywhere from 1-5% of the purchase price of the home. Other money already spent on the escrow process, such as title searches or home inspections, is also down the drain. Additionally, a buyer who cancels escrow without a contract contingency being met opens themselves to potential lawsuits from the seller. Although the seller may recoup some of the cost of their time with the earnest money in escrow, they can still sue the buyer for breach of contract.
So when can a buyer cancel escrow? When the contract is written, contingencies are included, along with specific windows of time for these contingencies to be a way out of the contract for the buyer. These are called rescissions, and they allow for the buyer to legally cancel the contract with no penalty. Some rescission situations in which a buyer could cancel escrow and receive their money back include:
- Title issues: If the title search comes back with a title that isn’t clear, and can’t be cleared by closing, the buyer can cancel escrow. This is part of the reason title searches (and title insurance) are critical to the homebuying process!
- Non-disclosure of known issues: If the seller knowingly chooses not to disclose issues with the property which impact the home’s value, the buyer can cancel escrow. For example, a pest problem, structural damage, or easement issues that the seller does not disclose despite knowing about them.
- Repairs are not completed: If fixes or improvements that were agreed upon as part of the contract are not completed at closing, the buyer may cancel escrow.
Although most real estate contracts go (relatively) smoothly from the initial listing to the transfer of keys, you can never be too prepared for bumps that may arise. Home buying and selling can be a stressful process, but with Clear Title by your side, you have one less thing to worry about. Clear Title offers title searches, escrow services, and even closing services. Call our Pensacola office at (850) 361-4029.