Backing Out of a Tennessee Real Estate Contract Without Legal Justification: What Happens?

 A crumpled real estate contract tossed aside – backing out of a deal without a valid reason can lead to serious consequences.

Signing a purchase and sale agreement for a property is a big commitment. But what if you or the other party suddenly backs out without any lawful reason? In plain terms, this means trying to cancel the deal when no contract contingency or legal excuse applies – basically getting cold feet or changing your mind.

When there’s no valid justification to terminate a signed real estate contract, the law treats it as a breach of contract, which can carry some costly consequences. This post breaks down what that means in approachable language for casual real estate investors, and what legal remedies might come into play (as a last resort) if someone walks away from a deal without cause.

Do You Have a Valid Reason to Cancel? (Contingencies vs. Breach)

Before panicking about potential liability, first ask: why are you or the other party backing out? Real estate contracts often include contingencies – specific conditions that allow a party to cancel the deal without penalty if those conditions are not met.

For example, a contract might let the buyer off the hook if a home inspection uncovers serious issues, if the appraisal comes in too low, or if the buyer can’t secure financing on agreed terms. These common contingencies (inspection, appraisal, financing, sale of the buyer’s current home, clear title, etc.) mean that backing out for those reasons is lawful and permitted under the contract. In cases, the cancellation is justified – often the buyer will even get their earnest money deposit refunded because the contingency provides a valid escape hatch.

• Example: A buyer finds major structural problems during inspection and has an inspection contingency. Walking away at that point isn’t a breach – it’s exercising a contract right.

  
  

• Another example: If a financing contingency exists and the buyer’s mortgage falls through, the buyer can cancel lawfully, since that contingency wasn’t satisfied.

  
  

However, if none of the contract contingencies apply and you back out anyway, that’s where trouble begins. If you’re unsure whether a given reason (like a change of heart or a better offer elsewhere) is legally valid, it’s wise to consult your real estate agent or an attorney. They can help determine if any clause in the contract covers your situation. Often, “I just don’t want to go through with it” is not a good enough reason – backing out without an approved reason will likely put you in breach of contract.

Backing Out with No Justification

When a buyer or seller tries to back out without any lawful basis, it is generally considered a breach (default) of the contract. In simple terms, the person walking away is breaking their promise. Real estate purchase agreements are legally binding, so a party can’t simply walk off scot-free because they had a change of heart.

If you default on a real estate contract without cause, you expose yourself to liability. The non-breaching party (the one who still wanted to honor the deal) has rights under the law to seek a remedy for the breach. The exact consequences can vary depending on whether it’s the buyer or the seller who backs out:

• Buyer breaches (walks away without cause): Typically, the immediate consequence is forfeiting the earnest money deposit you put down. That deposit – often a few thousand dollars or a percentage of the price – is meant to show you’re serious, and if you unjustifiably back out, the seller is usually entitled to keep that money. In other words, the seller can claim your deposit as compensation for your breach.

  
  

• Seller breaches (tries to back out without cause): If a seller decides they don’t want to go through with the sale (and no contract clause justifies it), the buyer isn’t left helpless. In fact, real estate contracts (especially in Tennessee and many other states) are usually written to protect buyers in this scenario. The buyer can potentially sue the seller for breach and ask the court for an order of “specific performance,” which is a fancy term for forcing the sale to occur. A judge might literally order the seller to sign over the deed and close the deal despite the seller’s change of heart.

  
  

• Alternatively, the buyer could sue for monetary damages if, for example, they ended up paying more for a comparable house or incurred costs due to the delay. Sellers who breach may also be on the hook for various costs the buyer incurred. Courts have ordered breaching sellers to do things like return the buyer’s deposit with interest and reimburse the buyer’s expenses (inspection fees, appraisal costs, loan fees, etc.) In short, backing out can become very expensive for a seller who has no valid excuse.

  
  

It’s worth noting that breaching a contract is a civil matter, not a criminal one – no one goes to jail for backing out on a home sale. But the financial consequences and stress can be severe. The exact outcome will hinge on the contract’s terms and the losses involved.

Legal Remedies Are a Last Resort

What can be done if a deal falls apart due to an unjustified breach? As described above, the non-breaching party can pursue legal remedies like retaining the deposit, suing for damages, or even seeking a court injunction (order) to enforce the sale. But taking a case to court is usually a last resort – and for good reason. Lawsuits are time-consuming, expensive, and stressful for everyone involved.

Why is legal action the backup plan and not the first choice? Because going to court can be a lose-lose: legal fees can quickly pile up, and there’s no guarantee of a quick resolution. From a practical standpoint, it’s often better to communicate and see if a compromise can be reached (for instance, extending deadlines, offering a small price reduction, or other concessions to keep the deal alive). If you’re the one considering backing out, talk to your agent or lawyer before you jump ship – they might help renegotiate terms or find a legal way out (if one exists) that minimizes fallout.

We Can Help Resolve Real Estate Contract Disputes

At The Law Office of Will McSeveney, we have experience handling real estate contract disputes – including situations where a buyer or seller tries to back out without a lawful reason. We understand how stressful it is when a deal you were counting on suddenly falls apart. We have experience helping clients in the Nashville area and throughout Tennessee to assess their options, negotiate solutions, and (when necessary) take appropriate legal action to protect their interests.

We offer free consultations, so you can discuss your situation with a knowledgeable real estate attorney and get guidance on the next steps.

Call us today at (615) 852-7221 for a free consultation, or schedule a free consultation today.

Disclaimer: This blog post is for general informational purposes and is not legal advice. Every real estate situation is unique, and laws can vary by jurisdiction. If you’re facing a potential contract issue, consult a qualified attorney (we’re happy to help) to get advice tailored to your specific circumstances.