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Page 12 of 31 |
What legal recourse does a buyer or seller have if the other party refuses to close? |
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Typically, a sales contract drafted by a lawyer will spell out the remedies for default. For example, if the buyer defaults, the contract may say that the seller can keep the deposit as liquidated damages.
If there is nothing in the contract dealing with default, then in most states, if the seller defaults, the buyer can go to court and seek an order of specific performance. This order commands the seller – under penalty of being held in contempt of court – to transfer the property to the buyer upon payment of the agreed purchase price. This is based on the assumption that each piece of real estate is unique and that money alone may not adequately compensate the buyer for loss of the desired property.
Alternatively, the buyer can sue for difference money damages: the difference between the contract price and the fair market value of the property (assuming it is higher than the contract price). The buyer may also be able to recover consequential damages such as mortgage application fees and appraisal fees paid in reliance on the contract.
If the buyer defaults, the seller can sue for difference money damages as well. But here, of course, it would be the difference between the contract price and the lower fair market price. For example, suppose the contract calls for the buyer to pay $500,000 but the fair market value of the property is only $450,000. The seller could try to get a judgment awarding the $50,000 in lost profit. It is relatively uncommon for a court to order a buyer to complete the purchase by paying the entire purchase price. |
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