Real Estate

Buyer's Remedies When Real Estate Sales Contracts Fall Through

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In most cases, someone selling a home is eager to reach the closing and move on, literally and figuratively. The last thing the home seller will do is scuttle the deal. But once in a while, a home seller will back out, having gotten cold feet, received a better offer, experienced a change in life circumstances such that he or she no longer wants to sell, or something else.

Fortunately, the home buyer has certain remedies available if a seller wrongfully fails or refuses to perform the obligations under a contract for the sale of real property, including:

  • money damages for breach of contract
  • termination of the contract and return of the deposit, plus payment of reasonable expenses, and/or
  • specific performance of the agreement—in other words, completion of the home sale.

Did the Seller Really Default?

Before rushing to look for remedies, it's important to remember that the seller (as well as the buyer) likely has some legal ways out of the contract, with no consequences. These are typically found in the form of "contingencies."

If, for instance, you and the seller agreed to include a contingency in the contract saying that the sale was contingent on the seller finding another house to buy, and the seller has, after good-faith efforts, been unable to find any place to move to, the seller is not at fault in canceling the contract. You would therefore have no legal basis upon which to complain or sue. Read the contract language carefully.

Claiming Money Damages for Seller's Breach of Real Estate Contract

If you have been financially damaged by the seller's breach of the purchase contract, suing for money damages may be an option.

How much can you ask for? That depends on how you were actually affected and the law in your state. If the seller acted in good faith and you were not otherwise financially affected, the seller may be liable only for return of the earnest money deposit plus interest and reasonable expenses. (This is the case in Florida, for example.) Reasonable expenses might include the cost of the title examination, preparation of a survey, and attorney's fees.

However, if the seller acted in bad faith, your state's law may allow additional money damages. Check with a real estate attorney for details.

Terminating the Contract and Recovering Your Money

In the event of a breach by the seller, or where you and the seller didn't actually sign a contract, or where the contract you thought you entered into is actually invalid or unenforceable, you are likely entitled to terminate the contract and recover any payments you made to the property seller.

Where both the buyer and seller agree to terminate the agreement, the buyer ordinarily is allowed to recover any purchase money paid, even if the contract provides that such payments will be forfeited if the contract is not performed.

Demanding Specific Performance From the Seller

If the seller is able but unwilling to perform (that is, to convey the house to you), it may be possible for you to bring a legal action for what's called "specific performance." In plain English, this means you're asking a court to order the seller to sell the home as originally planned. More specifically, the court would order the seller to complete the transaction according to the terms of the contract, rather than to compensate you monetarily for the breach.

Specific performance is not a matter of right, but is usually a matter for the court's discretion, and also depends on the law in your state. This remedy is typically found to be appropriate only when the purchase agreement lays out the essential elements of the intended sale in definite and unequivocal terms, when the buyer was ready and able to fulfill his or her half of the bargain, and where the parties cannot be returned to their former or rightful positions in any other way. If the sales contract allows the seller an unconditional right to cancel, the buyer will probably not be entitled to specific performance.

"Essential elements" of the contract typically would include the purchase price, earnest money deposit amount, down payment amount, legal description of the property, financing terms, closing date, and effective time period of the contract. They might also include an inventory of property on the premises that is to be included with the real property, specific conditions for sale, and so on.

Specific performance is not often granted. Courts are understandably reluctant to force a homeowner to sell, particularly if the seller now plans to remain in the home (as opposed to a situation where, for example, the seller decided to breach the contract in order to accept a better offer).

Questions for Your Attorney

  • Did the seller breach the purchase contract in canceling the home sale, or was the cancellation justified by the contract?
  • Can I get my earnest money payment back after the home sale fell through?
  • What does the law in our state provide by way of remedies for a seller's breach of a real estate contract?
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