What do you Do when the Sale Falls Through?
Protecting your rights as a buyer through specific performance
Imagine yourself in this scenario: for weeks, or perhaps months, you have been negotiating the purchase of your dream home. Youíve signed the contract, secured financing, and are ready to close on the property. The morning of the closing, you get a call from the seller, who backs out of the deal. Perhaps the seller got a higher offer than the price you agreed upon in your contract, or the seller learned that comparable properties in the area recently closed for a price higher than your contract price. You have your heart set on purchasing this property.
What options do you have?
One avenue you may pursue is to sue the seller for specific performance. Specific performance of a land sale contract means that a court will require the seller to sell you the property for the contract price.
The first thing you must do as buyer seeking a ruling of specific performance is show that you have fulfilled all of your contractual obligations and met all conditions as set forth in the contract. This means you will need to prove that you are ready, willing, and able to perform your end of the transaction, which includes being financially able to purchase the property.
One term to look for in your land sale contract is a ďtime is of the essenceĒ clause. This clause requires each party to perform his/her obligations within an agreed upon period of time. If a party does not perform within the specified timeframe, the general rule is that his rights under the contract will be void. Thus, if you as buyer had the obligation to secure financing by a certain date and are extremely late in doing so, a court may take that into consideration when deciding whether to grant specific performance.
You must also show that an award of the legal remedy (usually monetary damages) is inadequate. Establishing that money damages are inadequate for a land sale transaction is rather simple. Since all land is considered unique, money damages to a buyer of land is an inadequate remedy at law.
Another requirement that must be met in seeking specific performance is to show that enforcement by the court is feasible. With regard to feasibility, courts will typically find enforcement feasible when all parties and property at issue are located in the jurisdiction of the court where the buyer brings the action. In this situation, the court may transfer the property by court order if the seller refuses to comply.
Finally, of the seller / defendant claims that he or she has defenses, the plaintiff / buyer must defeat those defenses to prevail.
One advantage to filing a lawsuit when a seller backs out of a land sale contract is that in addition to your lawsuit, you may also file a notice of lis pendens on the property. A notice of lis pendens is a document recorded in the public records which puts the world on notice that the specified property is the subject of your lawsuit. Thus, if the seller sells the property to a third party, that third party is deemed to have notice of your lawsuit and is then purchasing the property subject to the outcome of your lawsuit.
Although it is up to the court to hear all the facts of your case and determine whether to grant specific performance in your favor, having a notice of lis pendens recorded in the public records will likely hamper the sellerís efforts in selling the property to a third party, who may not want to become embroiled in litigation. Cutting off the sellerís ability to sell the property to a third party purchaser may give you some leverage in settling your dispute outside of court. In short, filing a specific performance lawsuit may be enough to prompt the seller to honor his or her commitment.
In any event, you should consult an attorney if you are faced with a situation in which the sale falls through due to a sellerís failure to perform. The attorney can help clarify the steps necessary for obtaining a court ruling for specific performance and explore other options that may be more advantageous to you.
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.