Can bank back out of real estate deal to sell home in auction instead?

[twuoo]

I have a neighbor that had an accepted offer on a foreclosed property. He already gave his $1000 earnest money deposit, hired home inspector etc.

Latest news is that the bank is now rescinding its sale offer and taking the home to put up for auction instead.

Can they do that after they already agreed to sell to my neighbor? He already spent money for the home inspector and whatever else.

[HHM]

Usually not. If there was an Offer and the Bank Accepted and Earnest Money was conveyed, the contract is enforceable. The downside is, your neighbor will probably have to take them to court. Real Estate deals can typically be enforced with what is known as "specific performance". In the the normal breach of contract lawsuit, the plaintiff sues for damages, but in a real estate deal, the long standing tradition is that real estate is unique so you can force the other party to complete the sale, or more accurately, have the court force the other party to complete the sale.

If the bank is backing out, at a minimum they should refund the Earnest Money, and he should demand reimbursement of the Inspection Fee. If the bank refuses, he can take them to small claims and probably win.

[StartingOver08]

What a lot of the banks are doing now, with the homes in various states of foreclosure, is requiring an addendum to be signed by all of the parties, buyer and seller (and another addendum for the agents/brokers) that allows the bank to cancel the transaction right up to closing date with no penalty to the bank. Some of these addendums are actually 'mini contracts' that contradict the terms in the original contract signed by the buyer and the seller and of course, the bank makes their version the one that prevails when there is a dispute.

Are these contract addendums fair? No, and they are not meant to be fair or reasonable.

[OregonMom]

My parents thought they had a short sell on their house, bank agreed on price, they put earnest money down, but the bank drug their feet on for so long, like 4 months that the people said forget it and is went up for auction, never sold, so bank owns it now.