In some cases, real estate transactions do not work out the way the stakeholders may have imagined. If the purchaser and seller have already signed a contract to buy or sell real estate, they may choose to cancel the agreement informally over a phone call or email. However, it is important to cancel the same formally as well to avoid any legal issues later. The people involved can execute a termination letter to confirm the cancellation of a real estate contract.
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A cancellation form or a termination letter is a legal document that can be executed by the buyer and seller to terminate a real estate purchase agreement. This termination letter allows them to legally conclude an agreement if they do not wish to execute the same. The buyer or seller, can express their desire to terminate the contract. These documents usually provide how and when the termination will take place and frees the persons involved from any further liability towards each other. The letter may also provide how the earnest money deposit, if any, is to be treated.
There can be many circumstances under which buyers and sellers may want to terminate a purchase agreement.
Buyers may want to cancel a real estate contract for many reasons including:
On the other hand, the selling company or individual may also want to cancel a contract for the following reasons:
Termination of a standard real estate sales contract may not be a straightforward task. If a party is not careful, he or she may breach the terms of the contract. The following steps should be followed in the cancelation process.
Step 1-Negotiate a Mutual Rescission
The first step is to ensure that both, the purchaser and the seller, are ready to rescind the contract. They have to work together to invalidate the real estate contract and agree upon the terms on which the rescission will take place. The party that wants to cancel may send a letter to the other party stating the reasons for termination and formally request the other party to cancel. After a successful rescission, each party will be restored to the position they held before signing the contract.
Step 2-Check the Agreement
At this point, the party that wants to cancel must search for a reason to cancel in the original agreement. Sometimes the agreement itself may provide a reason for termination. For example, the buying individual or company finds a fault during the inspection period or the owner does not allow the purchaser to access the land for inspection. The contract may provide for termination under these circumstances. In such a case, the seller cannot refuse to cancel the real estate contract. The buying party may also be able to file a lawsuit for breach of contract. A real estate agent or attorney may also be able to help you with this.
Step 3-Draft the Cancellation Form
Once it is decided that the contract will be terminated, a cancellation letter should be drafted. It will contain the details of the buying and the selling party, the date of the actual real estate contract, the address of the property, and how the deposits are to be distributed by the seller or the agent.
Step 4-Sign the Form and Distribute the Deposits
The final step is to sign the document and distribute the earnest money or any other deposit accordingly. The escrow agent must also be notified about the termination. If the agent holds the deposits, he or she must distribute the same according to the terms of termination. The buying party and the selling party may still have to pay a fee to the agent despite the termination.
The following information is generally included in a termination letter or other such documents:
Party Details and Date
The termination letter should usually, at the beginning of the document, specify the name and mailing address of the parties involved and the date on which the document is made.
Reference to the Original Agreement
The letter will also refer to the original agreement which will be terminated through it and mention the date on which the original agreement was made.
Property Details
The termination letter will mention the address of the property related to the real estate transaction.
Earnest Money Release
The letter will generally stipulate how the earnest money deposit made by the buyer will be dealt with. It may also provide when the amount will be released and to whom it will be distributed. The parties may choose to distribute the deposit in parts to multiple individuals. The parties must also send a notice to the escrow agent to inform him about the termination.
Governing Law
The letter will also provide the law it will be governed by. Generally, the governing law would be the same as that of the original agreement.
Signature of the Parties
Once all the other details have been filled in, the concerned persons may finalize the termination by signing the letter. Once the document is signed, the individuals are bound by the same and the termination of the purchase contract takes place.
FormsPal’s easy to understand real estate contract cancellation template can be filled out by following these simple steps.
Mention the Date and Details of the Parties
Mention the date on which the document is made and entered into in the first blank space provided in the opening paragraph on the first page of the document. Next, fill in the buyer’s full name and mailing address, respectively, in the blank spaces provided before the term “Buyer”. After that, mention the seller’s full name and mailing address, respectively, in the blank spaces provided before the term “Seller” in the opening paragraph.
Fill in the Details of the Purchase Agreement and the Property
Specify the date of the original purchase agreement in the first blank space provided in the second paragraph of the document. After that, mention the address of the property in the second blank space provided in the second paragraph of the document.
Choose How the Earnest Money Will be Distributed
The document must provide how the earnest money has to be distributed. The parties may choose to distribute the money among multiple people. Specify the amount to be paid and the name of the party to whom the amount will be paid in the blank spaces provided under Section 2 of the document.
Sign the Document
Once all the other details have been finalized, the parties must sign the document. The buyer must sign it in the space provided next to the term “BUYER” and the seller must sign it in the space provided next to the term “SELLER.”
FormsPal’s customizable and easy to understand real estate agreement cancellation template can be used and downloaded for free.