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It's The Law: Do Real Estate Sellers Have Options When Buyers Breach

Question: I have a contract to sell my house. The buyer just told me that he changed his mind and will not close. What are my options?

Answer: You may have a number of options, depending upon your contract. The first option is always to accept a buyer's action and agree that the contract is terminated. If you do that, you will likely be barred from pursuing the buyer for damages or other relief.

If you are not willing to accept termination of contract, you may be able to sue the buyer for damages. Damages in a breach of contract action are intended to place the non-breaching party in the position he or she would have occupied if the contract was not breached. In a real estate sale, that will usually mean the difference between contract price and market value of the property at time of breach. Although courts can look to sales price of a later sale as indicative, the more time that passes between date of breach and sale to another buyer reduces evidentiary value of the later contract price. Damages will likely have to be based upon expert appraisal testimony. You can rest assured that the appraisers for each party will not agree.

If successful in a suit for damages, you will be entitled to pre-judgment interest from the date of breach. If an interest rate for default is not specified in the contract, it is set by statute and changes each year based upon the discount rate of the Federal Reserve Bank of New York for the preceding year. That rate is currently six percent (6%). You may also be able to recover what are known as incidental damages. Those are seller damages which would have reasonably been expected if the buyer breached the contract, such as costs incurred by the seller in connection with the breached contract.

Attorneys fees may be recoverable if your contract provides that attorneys fees are to be awarded to the prevailing party.

Alternatively, you may be able to sue the buyer for specific performance. Specific performance requires a party to fulfill that party's obligation under a contract. It is usually reserved for cases involving items which are so unique that a buyer could not buy a comparable replacement. At common law, real estate was considered unique because each parcel is different.

A buyer's money is not truly unique. However, the Florida Supreme Court decided that sellers should be able to sue buyers for specific performance in real estate contracts because buyers could sue sellers for that remedy. That means Florida sellers can sue buyers to force buyers to purchase. In those cases, the seller can get a judgment, attach the buyer's property and even a lien against the property being purchased to try to collect all of the money under that remedy. It is a difficult and awkward process that can be quite painful for a buyer.

You need to read your contract because your contract may limit your rights and remedies. Many real estate contracts include a provision that the seller's sole remedy in event of buyer default is forfeiture of any deposit placed by the buyer. This is known as a liquidated damages clause. A liquidated damages clause is an effort by the parties to agree upon an amount of damages in advance of breach, where the actual damages may be difficult to determine.

Liquidated damages clauses are enforceable, as long as they are not viewed as a penalty. Liquidated damages will be viewed as a penalty when the agreed amount is more than a reasonable effort to estimate damages, as when the deposit is fifty percent (50%) of the purchase price. If the court finds the clause to be a penalty, the clause is negated but the seller can still sue for damages.

Before proceeding further, you should consult with an experienced attorney. Any communication you have with your buyer may be interpreted as agreement to terminate or waiver of claims you might pursue. An experienced attorney will be able to explain your options and help you avoid problems that might arise if you mishandle your dealings with your buyer. Prompt action is important to avoid claims that you accepted the termination or that your delay somehow damaged the buyer. You should contact an attorney immediately.

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