What recourse does a seller have against a buyer whose loan is not approved by the closing date?

I’m going to post the whole question before answering:

“At closing we were told the buyer did not actually have their loan approved yet. The sellers purchase of of a new home was contingent on the closing. The buyers realtor says she will buy the property if they can’t close in seven days. Can any action be take in support of the sellers?”

I see the problem. Seller enters into a contract to sell his home expecting their buyer is at least pre-approved for the loan. On that faith, the sellers now become buyers of another home, but make that contract contingent upon selling their current home so they don’t get stuck with 2 house payments.

My first question, “Why didn’t the sellers get some form of “qualification” from the buyers before accepting their offer? And how is it you’re not hearing about the buyer’s approval problem until the day of closing? The contract has “hard deadlines”…appraisal by X date, loan approval by Y date…and final commitment by Z date. Who let all these hard deadlines go by without calling the buyer on it? The agent for the seller was asleep at the wheel on more than one occasion.

If the seller’s agent had been doing his job…these deadline “misses” could have signaled a problem early enough to cancel the contract and put the house back on the market. An ounce of prevention is worth a pound of cure…especially in real estate.

The buyer’s agents line of bull about buying the house is just to get the sellers to extend the contract another seven days…which should not be done. Take the earnest money…as liquidated damages…and put the house back on the market.

The buyers missed every date in the contract and have no claim to the earnest money. So that is your recourse…and probably your only recourse.

The will need the seller of the new house they want to buy to extend their contract as well. Their seller may not want to…and they’d miss out on the house they wanted. No recourse for that I’m afraid.

Good Luck!