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When a Note Seller Backs Out

Do note seller’s ever back out after accepting an offer? Well… yes, note seller’s do from time to time want to back out of the sale of their note and it can be very frustrating. It does not happen very often at all but it does happen. 

The reasons why a note seller wants to back out of a transaction can vary. A few of the most common reasons a note seller might want to back out of the sale of their note can be:

1.  They think they could get a better price.

2.  They think it is taking too long. 

3.   Practical reasons like they don’t really need the money any more, they found the money they needed somewhere else and the reason they needed the money went away.

4.  Probably the most common reason is simply cold feet.

Although note buyer’s remorse is far more common than note seller’s remorse, it does happen.  A note seller may get cold feet due to the strong emotional attachment they may have with the property they sold that the note is secured by.  In such cases, it’s best for the note seller to remember the reasons they wanted to sell their note to begin with and to reexamine their note selling motivations.  

Just like buying or selling a home, selling a seller financed note (an asset) can be a big life change.  Change means different things to various people.  Most everyone could agree that with change comes a certain amount of anxiety and fear.  As long we remain clear on why we are doing something, in this case, selling a note, then everything will work out for the best. 

What I have found is that it comes down to the initial Note Purchase Agreement you had them sign when they accepted your offer agreeing to your price and how you position the situation of them backing out of the deal and the consequences. If stated clearly in your agreement the seller should already know the ramifications of backing out for no reason.

Your initial purchase agreement might have something in it like the following:

“…should note buyer be ready, willing and able to close and fund and should seller refuse to consummate the closing of this said sale, then seller agrees to immediately reimburse note buyer, upon notice, all documented out of pocket expenses incurred to date including, but not limited to appraisals, credit checks and title searches, plus an administrative fee equal to 5% of the agreed upon acquisition price…”

Will they honor their word and the agreement? Will they actually reimburse you for your expenses and pay you 5% of the purchase price? In my experience, rarely. However, just by having that sentence in my agreement has been encouragement enough for most of them to go through with the transaction (because they did not have the funds to cover the expenses and fee. And again, please keep in mind, that it has only been a handful of people in over 30 years I have been in the note business that have cancelled for no reason and that I ever sent an invoice to for reimbursement of expenses and the 5% administrative fee.  

This article is ONLY about a note seller backing out for no reason other than they changed their mind (after they have signed your initial purchase agreement) for the above mentioned four (or similar) reasons. It is not about them backing out when you change or cut your offer to them for legitimate reasons (low appraisals, poor credit or title issues). When that happens, you need to renegotiate and get another agreement signed for the new accepted offer (that is IF they accept the cut or revised offer). 

Be aware it is very difficult to force anyone to sell their note to you because they said they would and is really not worth the aggravation and cost to make them sell their note after they have signed your initial purchase agreement. Obviously, this a situation no one wants to find themselves in yet it does happen once in awhile.  

Hope this helps! Be kind, keep safe and stay healthy. Remember success demands action, keep on marketing, it’s going to work! TWITA! (That’s What I’m Talkin’ About!)

Jeff Armstrong of Armstrong Capital has been a note investor and broker specializing in the performing seller financed note industry since 1991. For more updated and current information on how he can help you with your note business, note investments, note appraisals or to request pricing options on a note visit www.armstrongcapital.com to email him and subscribe to his weekly Note-Able Newsletter.

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