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A buyer has certain remedies available to him or her if a seller wrongfully refuses to either give title to the real estate or otherwise defaults on an agreement of sale between the parties, unless there is a provision in the agreement that limits the seller’s remedies.
A seller may not escape a duty to perform a contract of sale on the ground that a state law imposes significant environmental cleanup costs on the seller.
Where the seller wrongfully fails or refuses to perform its obligations under a contract for the sale of real property, the buyer has three basic remedies:
- Money damages for breach of contract
- Termination of the contract and return of the deposit, plus payment of reasonable expenses, which may include the cost of title examination, preparation of the survey and attorney’s fees
- Specific performance of the agreement
Damages for Breach
Money damages are generally measured by the difference between the contract price and the market value of the property. However, in some states, ordinary contract damages for the seller’s breach, which is the failure to fulfill contractual obligations, will not be available unless the seller has acted in a dishonest manner or has been unwilling to perform. Under this rule, the seller acting in an honest manner who is unable to perform will only be liable for return of the down payment plus interest and reasonable expenses.
Termination of Contract and Recovery of Money
In the event of the seller’s breach, or where no contract is actually entered into, or where a contract made is invalid or unenforceable, the buyer is generally entitled to terminate the contract and recover any payments made.
Where both the buyer and seller agree to terminate the agreement, generally the buyer may recover purchase money paid, even if the contract provides that such payments will be forfeited if the contract is not performed. A deed or contract may be revised if there is mutual mistake or fraud.
If the seller is able but unwilling to perform, an action for specific performance may be instituted. Specific performance is where the party claiming a breach of contract wants to complete the transaction according to the terms of the contract, rather than receive monetary compensation (damages) as a result of the breach. Specific performance is not a matter of right, but a matter of a court’s discretion. It is appropriate when the agreement is definite and unequivocal and where the parties cannot be returned to their former positions. If the sales contract allows the seller an unconditional right to cancel, the buyer will probably not be entitled to specific performance.
To obtain specific performance, the purchaser must show that he or she was ready and able to perform at the closing. Specific performance may be granted where there is reasonable certainty as to what was intended in the contract and the meaning of the contract, taken as a whole, is understandable to the court. In order for a contract to be subject to specific performance, the contract must reflect that the obligations of the parties with respect to conditions of the contract and actions to be taken by the parties are clear, definite and certain. If the agreement is definite in all of its essential elements, specific performance can be granted.
“Essential elements” of the contract typically would be the purchase price, deposit amount, down payment amount, legal description of the property, financing terms, closing date and effective time period of the contract. It also could include an inventory of property on the premises that is to be included with the real property, specific conditions for sale, assignment of the contract to a third party and terms for refinancing, particularly where the seller is holding the mortgage.
If the buyer seeks specific performance, he or she must remain ready to perform his or her obligations under the contract while the lawsuit is pending. Specific performance involves problems of proving contract certainty and reasonableness that are not involved in a lawsuit for damages.
The purchaser of real property has a lien on the property equivalent to the amount of the down payment, plus interest, to secure repayment if the closing date does not occur for reasons other than the default of the purchaser. To recover, the purchaser must usually show willingness and ability to perform, not just claim a breach by the seller.