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Just because property is under contract doesn’t necessarily mean that the deal will close. Many situations can cause a deal to fall through, ranging from the buyer’s job loss to “buyer’s remorse,” where the buyer decides not to go through with the sale for reasons that may or may not be related to your property and don’t justify cancelling the sales contract in your mind.
What happens when the sale of a house doesn’t work out? In some cases, you can take legal action if a buyer refuses to complete a sale. Limitations as to what you can do can be written into the initial sales agreement that narrow your options, so read the contract carefully.
It’s wise to stay focused on your top priority as a seller – to sell your property. Even if it’s the buyer’s fault that the sale didn’t close, you may decide that getting your property back on the market and finding another buyer is the best thing to do. It’s helpful to know about your possible remedies if your sale falls through, and then you can decide what to do next. You’ll want to talk to your real estate agent and possibly a real estate lawyer before proceeding.
A seller may do the following if the buyer decides not to go through with the purchase:
- Retain the initial down payment and terminate the contract
- Sue for breach of contract
- Bring an action for specific performance
Only One Remedy Allowed at a Time
Generally, only one action can be taken at a time. If one remedy fails, though, you may be able to file another lawsuit for a different reason. Remember, your sales contract may limit your options. For example, the contract may state that if the buyer fails to close without good reason, you are entitled to “liquidated damages,” which is a set amount of money, and that you are not allowed to pursue any other legal remedies.
It’s important to know that if you choose to file a lawsuit, the buyer will file a “lis pendens” in the public records. This notice shows that your property is involved in a lawsuit, and you won’t be able to sell your property during this time. Potential buyers won’t make offers, and most likely won’t even look at your property.
Seller Keeps Down Payment
When the seller is ready, willing and able to sell their property and the buyer refuses to close on the sale, the seller has the right to terminate the contract and keep the down payment. This is true even if the amount of the down payment is more than the amount of any damages to the seller caused by the breach. It is also true if the seller has resold the property to another person for more money than the original contract price.
When the seller doesn’t abide by the contract, or if both buyer and seller are in default, the buyer usually gets the down payment back.
Sue for Damages
A seller may bring a lawsuit against the buyer and ask for money damages when a buyer has not done what was agreed to in the contract. The damages are based on the difference between the contract price and the market value of the property at the time of the breach, less any down payment or other payment already made, plus interest from the date of default.
Specific performance is where the person claiming a breach of contract wants to complete the transaction according to the terms of the contract, rather than receive money. A seller does not have a right to specific performance; whether or not to grant specific performance is up to a court. A court may consider granting specific performance if the contract is clear and definite and an award of money will not return the individuals to the positions they were in before signing the sales contract.
If the agreement is definite in all of its essential elements, specific performance can be granted. Essential elements of the contract typically include the purchase price, deposit amount, down payment amount, legal description of the property, financing terms, closing date and effective time period of the contract.
In most states, the seller has an implied equitable lien on real estate that has been transferred to the buyer for any part of the contract price remaining unpaid. The lien is a right to have the unpaid balance paid for out of a sale of the property.
Questions for Your Attorney
- I’m upset that the buyer didn’t close on the sale of my house without good reason and I want to sue, but is this a good idea in my situation?
- How does the failed sale of my property affect my listing agreement with my real estate broker? Do I owe a commission or can I just cancel that contract? I want to take my property off the market for now.
- If I find another buyer and close on the sale quickly, can I still sue my first buyer for breaching the sales contract? The first buyer’s failure to close did cost me time and money.