Summary of this article
Property contracts are legally binding once signed
Backing out can mean deposit loss, lawsuits
Ownership transfers only after legal registration
Buying a home can become one of the most tedious processes one can experience if one is not educated about the legal and administrative processes involved in home-buying. If first-time home buyers are aware of the common mistakes people make during their own process, they can stay away from the consequences that arise when things go south.
Understanding the legal landscape in the real estate sector can help you avoid costly mistakes, delays, and even lawsuits. Therefore, it is important to understand which contract terms are legally binding, and what happens if one backs out of a deal either as a buyer or a seller.
When Is The Deal ‘Final’?
One misconception first-time home buyers often make is assuming that nothing is final until the final payments are made. Typically, most purchase agreements are legally binding the very moment they are signed by both parties, even though the sale has not yet been closed.
Once the contract is executed in its entirety, the purchase price becomes legally enforceable. The contingency deadlines are set in motion, as well. For the buyer, this means the process to arrange for funds for legal duties has officially begun.
While a few provisions are dependent on future events, the contract itself is binding. Missing any deadline or assuming that promises made outside the contract can override written terms can put the buyer in a questionable position.
The common misconception that the word or promises of the seller can override what is written in the contract can lead to trouble. This is solely because courts consider the agreements as the only form of proof, not what was understood or said in any informal conversation.
What Are The Consequences Of Backing Out Of A Deal
Getting cold feet is quite common while choosing a home for oneself. A major mis-step is assuming that you can easily walk away from a deal if you change your mind. Whether you can or not legally back out of a deal depends entirely on the contract and what are the applicable state laws.
When backing out, one must keep in mind that they can lose out on their deposit money, and the seller can also sue the buyer for a breach of contract. Another scenario can be that the seller is asked to pay for the damages or the added fees.
Says Mayank Arora, partner, Chambers of Bharat Chugh: “If the buyer unilaterally cancels without legitimate grounds, the usual result is forfeiture of earnest money ( if provided for under the agreement). Courts have repeatedly held that earnest money paid to the seller secures performance by the seller and if the buyer defaults, the seller can keep it as damages (assuming the agreement explicitly says so). If one backs out of such a transaction, for no fault of the seller, one risks losing that money and possibly being sued for breach (the seller could seek specific performance or damages). By contrast, if the /seller defaults, the buyer can cancel and recover their payments and even seek specific relief enforcing the agreement against the seller.”
Most first-time buyers are not aware that there are no automatic exits; there is a structured process for almost everything in the home-buying process.
What Are The Obligations Of The Seller
Buyers assume that the sellers are obliged to disclose every tiny detail, but in reality, sellers are only legally required to disclose certain types of information, and the scope of disclosure varies in different jurisdictions.
Mostly, sellers must disclose the known material defects that are presently affecting the property, including structural, electrical, plumbing, or roofing issues. Legal issues, such as boundary disputes or zoning violations also need to be mentioned.
Says Arora: “Under the law of transfer of property, a seller must disclose any latent defects in the property or in the seller’s title that the buyer cannot discover by ordinary inspection/diligence. In other words, the seller must inform a buyer of any known legal issues, liens, or hidden flaws or other encumbrances that materially affect the property value or title. Sellers or builders cannot misrepresent facts. Any material nondisclosure would vitiate the agreement in favour of the other party. The seller must be fully transparent about all the representations made by the seller about the property.”
This is why it is important for sellers to make close inspections before the formalities for the sale begin. This can prevent a lot of future problems for the buyers. The mistake here is that the buyers assume that no disclosure means that there are no problems, but it legally translates into “no known problems.”
When Is The Deal Finally Closed
Closing of the deal does not happen once all the decided amount is paid; it is a legal moment when the legal ownership transfers. After the money is paid, the Sale Deed, Registered Title Deed, and Mutation Records are issued, which are the key defining papers that establish new ownership. If you don’t get these documents made, you are not the legal owner of the property.
Buying your first home does not require you to be on your feet at all times. What is required is your understanding of the legal and administrative formalities. Your responsibilities as a buyer outweigh those of the sellers, so to ensure that the home-buying process is smooth, you need to keep your end of the deal diligently. Knowing about the legal formalities can save you a significant amount of money down the road.
