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It's The Law: Rescission May Be An Option In Recession

Question: I have a contract to buy a house. The house backs up to a park like area that the seller told me was preservation property that could not be developed. I just read an article in the newspaper that a shopping center is going to be built on that property. Am I stuck?

Answer: You may be able to terminate the contract and get a refund of any deposit if you can successfully show that the seller fraudulently induced you to enter the contract. At common law, both fraud and mistake could be sufficient to obtain equitable relief known as rescission. Rescission might even be available if you had purchased the property and later found the seller had defrauded you.

Rescission can also be granted if an agreement is based on mistake, even if the mistake is one sided, as long as the mistake involves a substantial element of the contract. Rescission has also been granted on the basis of duress and coercion, where a party is forced to take action that he or she would not have normally taken. Duress can be emotional, physical or other form of pressure.

Undue influence can also support an action for rescission. Undue influence is similar to duress. It exists where a person is close to a victim and uses their relationship to induce action.

Rescission has also been granted where the purpose of a contract is illegal or a party lacks capacity to enter a contract (such as minority or insanity).

There are a number of statutes that also provide rescission rights. The Condominium Act allows buyer from developers a fifteen (15) day rescission period and allows buyers from non-developers a three (3) day right of rescission. Florida time share purchasers have a ten (10) day right of rescission. And, the Federal Truth-In-Lending Act provides borrowers three (3) business days to rescind contracts if a mortgage on their principal home will be involved. Florida statutes provide buyers from door to door salesmen a three (3) day right of rescission.

To seek rescission, you must move promptly. If delay causes harm to the other party, rescission may be denied. Rescission can also be denied if you ratify a contract after you find out about the fraud or other deficiency. And, if you are also party to fraud, the courts may deny your efforts to rescind. That might be the case if you want out of a contract to buy a house at a price inflated to get a bigger mortgage.

Because litigation can be expensive, it will be important to see if your contract has a provision for award of attorney's fees in event of a dispute. If the provision is worded broadly enough, you recover attorney's fees if you are successful in obtaining judgment for rescission.

The recent case of Townsend v. Morton is a good example of an action for rescission. In Townsend, a mother wanted to avoid probate by deeding property to her son and reserving use of the property to herself for her lifetime. What she kept is known as a life estate.

After she did a deed, her son found out that mom was actually married to the man she was living with. Because Florida's Constitution requires both spouses to deed homestead property, the son got mom and her husband to sign a new deed.

A while later, mom took a good look at the deed and found that the new deed was a complete transfer of title and that her life estate was gone. Mom sued for rescission. The trial court rejected mom's claims and the appellate decision does not explain why. It may have been because the judge thought mom should have read the deed before signing. In any event, the appellate court reversed.

The appellate court opined that mom had been the victim of fraud. Elements of fraud are (1) a false statement concerning material fact, (2) the representors knowledge of falsity, (3) intent that the representation induce another to act on it, and (4) injury caused by reliance.

The court ordered that the deed be rescinded. It noted that rescission of a completed contract also requires that the parties be restored to the position they were in prior to performance. In this case, the property was not much changed from its condition at time of the deed.

These cases are decided based upon the facts and specific circumstances. Since a claim for rescission can be barred if not timely pursued and the other party is harmed by the delay, I suggest that you discuss the specific facts of your situation with an experienced attorney as soon as possible.

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