Consider the Contract
Before You Back Out

Question: I signed a contract with a buyer who had a preapproval letter, but now the lending institution says his income isn't sufficient. He wants to obtain an FHA mortgage, but I won't agree to this -- too many fees. I told my real-estate agent before I signed his listing agreement that I planned to pull my home off the market if it wasn't sold by a certain date, which has already passed. Can I cancel the contract since the 30-day window in which the buyer agreed to secure financing has passed?

-- Mary, Nashville, Tenn.

Mary: Unfortunately, many preapproval letters aren't worth the paper on which they are printed. Unless the lender "commits" to a loan, what the buyer has is actually just a contingency letter. Such letters can be contingent on obtaining verification of income and employment or a good credit score.

As far as the purchase contract is concerned, you can't arbitrarily cancel it once you have signed it and agreed to its terms. But you or the buyer can usually back out gracefully (without penalties) if a contingency wasn't met. For example, in your case the buyer apparently can't get financing, which could allow him to withdraw. If you have a clause that limits the amount of time for him to secure financing to 30 days, you should be able to withdraw once the deadline has passed. If your real-estate agent won't give you a clear answer on this, it may be time to take your contract to an attorney for an evaluation.

-- Mr. Irwin has more than 25 years' experience as a Los Angeles-area real-estate broker. He is the author of more than two dozen books about real estate and is recognized as one of the most knowledgeable writers in the real-estate field. Mr. Irwin's most recent book is "Tips and Traps When Renovating Your Home," (McGraw-Hill, 2000).

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