How to Prevent a Layoff
From Ruining Your Deal
Question: My fiancée and I are in the process of buying a home. We have been approved for a mortgage, done the inspection and are simply waiting for the closing date to come. Here is my dilemma: I am hearing through the grapevine at my company that there may be layoffs in the coming weeks. What do I do? Should I cancel the deal? Obviously, I am beginning to look for another job. But considering the current condition of the employment market, I might not find one before the closing date.
-- Joe, Chicago
Joe: It isn't so much a matter of what you should do as what you can do. Facing the threat of unemployment today is certainly a daunting problem. I can easily understand how it would make you want to reconsider your purchase.
However, you entered into what is usually intended to be a legally binding contract to purchase a home. Apparently, you have fulfilled all the requirements for concluding the purchase. I am sure the seller would be very unhappy if you suddenly refused to buy. He or she probably would seek to keep your deposit and might even seek "specific performance" -- to legally force you to continue with the purchase or at least pay damages.
Having said all of this, you might not have a problem at all. Assuming that your purchase agreement includes a standard finance contingency, you are only required to go through with the purchase if you can get financing. If that contingency is still in effect, losing your job prior to closing and conveying this fact to the lender will probably cause the bank to deny your mortgage application. No loan, no purchase. In fact, as part of your qualifying, your employer probably verified that your prospects for future employment were good. Were your employer now to tell the lender that your prospects had just become terrible, the lender might likewise not want to go forward.
Beyond that, you can always negotiate with the seller. If your lender is determined to give you financing no matter what (your credit is impeccable, you have money in the bank, etc.), you can go to the seller and explain your predicament. Most sellers are reasonable, once you come to them and explain your situation. Perhaps the seller will want part or all of your deposit; perhaps not. I think it would be unlikely that the seller would pursue you legally under these circumstances.
As a first step, have your attorney or agent check your purchase agreement. Find out if there is a finance contingency, if it is still in effect and what its ramifications are. Then, check with your lender.
On the other hand, you might feel like taking a chance. With home prices continuing to go up in most areas, residential real estate remains the best investment in most towns. Depending on the price you are paying, you might be able to resell for a handsome profit within a year or two. And won't you feel left out of the market if it turns out you didn't lose your job -- or found an even better one!
-- 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 books are "How to Get Started in Real Estate Investing" and "How to Buy a Home When You Can't Afford It" (McGraw-Hill, 2002).
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