It's The Law
Breach By Buyer Does Not Stop Later Sale
I had a contract to sell my condominium and the buyer defaulted. I have been told I have to sue to get the deposit and if I put my property back on the market before that lawsuit is done I have waived any claim for damages, including my claim to the deposit. I was also told the buyer could tie up my property for years. Is all of that correct?
Contracts are dangerous. Proper drafting is important to make sure the agreement of the parties is correctly reduced to writing. Even form contracts can be dangerous if the parties do not understand the terms or fail to fill in the blanks. That is why we recommend retaining an attorney to draft and at least review contracts prior to signing.
Under the Statute of Frauds, contracts for the sale of real property must be in writing. The good news is that means terms of the agreement are documented. Bad news is that the parties do not always agree on what the written document means and there is still opportunity for either party to refuse to honor the agreement.
If the buyer defaults, seller's options can be limited by contract. If there is no limit, the seller may sue the buyer for damages or for specific performance.
If the seller sues for damages, the measure of damages is difference between the purchase price and fair market value of the property at time the buyer breached the contract, less any money already paid by the buyer. If the buyer has made a deposit in escrow, the escrow agent will likely hold the deposit until end of the lawsuit and, if the seller is successful, the deposit will be released to the seller and reduce the amount of recovery from the buyer. In addition, the seller may recover any other damages that the parties would reasonably expect to arise from the buyer's breach. That could include cost of ownership from date of buyer's breach through date of subsequent closing (i.e. mortgage, taxes and repairs) and expenses of resale. If provided by contract, the seller can also recover attorney's fees.
If the seller chooses to sue for specific performance, the seller asks the court to enter judgment ordering the buyer to close on purchase under the contract. In addition to ordering the buyer to close, the court can award incidental damages to the seller. If the buyer does not satisfy the judgment, the court can order the property sold at public sale and enter a judgment against the buyer for the difference between sale price at public sale and the contract price plus incidental damages. If sued for specific performance, the deposit will generally be applied toward the purchase price or damages.
Most form real estate contracts in Florida do not allow the seller to sue a buyer for damages or specific performance. Instead, the contract provides that the parties agree it is difficult to determine actual amount of damages incurred by a seller if the buyer defaults and that specific performance is not a remedy to be allowed under the contact. In those cases, the parties agree that in event of default by the buyer, the seller's sole remedy shall be forfeiture of any deposit made or possibly any deposit that was supposed to be made by the buyer.
If the deposit is made to escrow, even when it appears clear that the buyer has default, the escrow agent may be unwilling to release the deposit to the seller until the parties agree or a court order is obtained. Because there may be oral agreement or other circumstances that can effect rights of the parties under a contract, an escrow agent releasing the deposit without agreement of the parties or a court order assumes liability if the deposit should not have been released. That is probably why you have been told that you will have to sue to obtain the deposit.
Good news is the rest of what you have been told appears to be incorrect. If your buyer is in default and you have not breached the contract, it is likely the buyer has no further rights under the contract. You must advise the buyer that you are treating the buyer's failure to perform as a material default terminating the contact, but thereafter can move forward with remarketing the property. In fact, if you claim damages, you will likely have to show that you made effort to mitigate your damages by attempting resale as soon as possible. The only possible hitch in moving forward is that the buyer may file a lawsuit against you claiming fraud or even specific performance.
If the buyer files a lawsuit for specific performance, the buyer can also file a lis pendens. That is a notice in the public records that the buyer is suing you and that title to your property is involved. A recorded lis pendens will cloud title and likely preclude subsequent sale until the lis pendens is removed. But, if the lis pendens is not well founded, you may have a claim against the buyer for damages for slander of title. That will be damages caused to you by inability to sell, such as carrying expenses, property taxes, insurances and even damage or repair which would not have been necessary if you sold the property.
You might also have a claim against the buyer for abuse of process. Abuse of process is the illegal, malicious or wrongful use of legal action to intimidate or force someone to take action. If the court agrees the lawsuit is particularly heinous, you might also get punitive damages.
The facts and circumstances of each case will control the outcome. Before proceeding further, I suggest you retain an experienced attorney and review all details of your situation. There may be conversations, emails or letters that hurt your case. A good attorney will not only be able to explain the strengths and weaknesses of your position, but also the cost of litigation so you can make an informed decision concerning your next step.
By: William G. Morris, Esquire
William G. Morris is an attorney with offices at 247 North Collier Boulevard on Marco Island, Florida. His practice covers a broad range of subjects, including civil litigation, real estate, business and corporate law, estate planning and probate, domestic relations and contracts. He writes this column periodically with respect to legal matters that frequently affect non-lawyers. The information contained in this column is not intended as legal advice and, of necessity, is generalized. For questions about specific circumstances, the reader should consult a qualified attorney.
Questions for this column can be sent to: William G. Morris, e-mail: email@example.com or by fax, (239) 642-0722 or
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