HOW TO TERMINATE AN INDIANA RESIDENTIAL PURCHASE AGREEMENT
Buyers who find themselves shackled to a contract or purchase agreement for the purchase of a new home sometimes wish they could rescind the whole deal. When they tell their Realtor, they want to surrender their earnest money and back out of the purchase agreement, they are often told it’s too late. They are told they will be liable to the sellers for any losses they incur in trying to sell the house to another buyer and may also be obligated to pay their real estate agent’s commission to boot. However, the discovery of significant conditions effecting the use and enjoyment of the property after signing, can serve as the buyer’s basis for terminating the agreement.
Significant conditions typically include such things as deed restrictions and covenants, special tax assessments, or plans to alter neighboring infrastructure or zoning. There is no established list of conditions that would fit this category, but certainly any number of conditions might materially impact the use and enjoyment of real estate. Of course, the trigger for escape arises only when the condition is discovered after signatures bind the buyer to the agreement. Certainly, raising such concerns over conditions known to the buyer before signing, would not typically give rise to the right to terminate.
In central Indiana, most Realtors use standard purchase agreement forms provided to them through the Metropolitan Indianapolis Board of Realtors (“MIBOR”). MIBOR purchase agreements currently in use (as of 1/1/17) contain a paragraph that deals with the parties’ obligations concerning homeowner associations and covenants. The form is designed to allow the parties to negotiate the number of days in which the seller is required to disclose the HOA info and covenants, and the number of days in which the buyer has to object and rescind the entire agreement. Failure of the buyer to raise a timely objection will generally result in the buyer’s right to terminate. Similar provisions may be found in purchase agreements used throughout the state of Indiana whether they are boilerplate or uniquely drafted.
The language used in the standard MIBOR form is intentionally designed to close the loophole that would otherwise give buyers an out. Had such a provision not been included into the terms of the parties’ agreement, it would remain for the buyer to raise the issue any time prior to closing, provided the substantial condition(s) was or were discovered after signing the agreement.
It is important to note Indiana law requires the seller to provide information regarding the homeowner’s association, their contact information, assessments, and copies of the covenants. This is required pursuant to I.C. 32-21-5-8.5. However, failure on the part of the seller to provide this information does not limit the enforceability of the covenants. It may, however, open the door for the buyer after closing to sue the seller for a rescission of the sale based on a theory of “fraud”, since failing to disclose such information would be a failure to speak where the law imposes an obligation to disclose such information.
The great advantage of using the objection provided for in the standard MIBOR form, is that by using the escape clause built into the agreement, the buyer is more likely to terminate the agreement without incurring liability to the seller or any of the real estate agents, recover their earnest money, and avoid costs associated with defending a lawsuit.
Robert McNevin, Jr. is a partner with the Indianapolis law firm at Indy Advocate. His practice is primarily focused on construction and real estate law.
