I’m not looking for legal advice; this is a hypothetical situation only.
If someone (seller) is selling a house to someone else (buyer), they sign a purchase and sales agreement that basically says (subject to certain contingencies) that seller agrees to sell buyer his house on X date for $Y. As part of this contract, the buyer customarily includes a deposit.
Let’s say that all the conditions and contingencies specified in the contract are met, but come the day of sale, one party simply changes its mind.
It is my understanding that if it is the buyer that changes his mind, the seller can theoretically keep the deposit. (Feel free to correct me if I’m wrong.)
My question: what if it is the seller that changes his mind? What remedies (if any) are available to the buyer? Can he sue the seller to enforce the contract – i.e., can the seller be forced to sell the house? Or can he only sue for any expenses he may have incurred in reliance on the contract (setting up contracts with moving companies – that kind of thing)?
This may differ by state – I live in Massachusetts, but would be interested to hear answers from any state.
IANAL - You break a contract, you can reasonably expect to pay for what it put the other person out. For my neghbours, in anticipation of sale, their daughter and her husband had to move out of the basement and get an apartment - they had been helping with the mortgage. I presume moving expenses out and back in, and the aprtment cost, might be valid damages. (He never did say what they settled for). Does the offer say anything about “you can keep the deposit if I cancel”?
OTOH, there’s the duty to mitigate. You can’t say "I’m assuming youw ill move in Thurday even though you said you were not, so I’ve cancelled my heating and electricity and you can pay for the frozen and burst pipes when it happens. " You have to make a reasonable effort to keep the damages down and fair.
I seem to remember that, in he case of a contract for the sale of land, a court can order specific performance, i.e., can order the seller to convey the land to the buyer, subject (of course) to the buyer providing the cash agreed to in the contract. And if the seller won’t, then a court officer will do it for him/her. I’m not a lawyer, however, and this may not be true in all jurisdictions – I just heard of it being true in Australia.
I guess it depends if the court rules the contract has taken place or not. Once you agree to a contract and accept a good faith payment, are you deemed to have executed the contract, the only thing left being the paperwork? That’s up to the courts.
When my father sold his house, the buyers didn’t show up for the closing. They explained they had changed their minds, and by the way, would my father refund their deposit.
He said helllllll no and that was the last we heard from them.
In talking things over with the real estate agent (who, I should point out, was NOT a lawyer) she said if the situation had been reversed, the buyers could have sued the seller, but in real life the case probably would have been settled, rather than a court-ordered sale.
The first time we sold our house in Louisiana, the buyer backed out. The deposit was in escrow. We could have sued her, we could have sued to get the money, but our lawyer said that the house could not be sold again while the case was open, so either course would not be a good idea.
Now in the case of the OP, the seller is in the house, and so can take as long as he wishes. The buyer, however, would not have a house for the duration of the case. I suppose this would be okay if they were local and renting, but if the are trying to see their house they mind wind up with no place at all. So, what is right may be very different from what is going to happen.
A deposit (aka “earnest money”) is normally paid to the seller when the sales agreement is signed. That is generally non-refundable.
So if the buyer defaults on the contract, the seller can keep that money.
The seller could also sue the non-buyer for defaulting on the contract, but they rarely do. First, they would have to prove damages – that can be hard to do. Maybe if they turned down other potential buyers because of the sale agreement, and then after the default those buyers had found other houses, and so they eventually had to sell the house for a lower amount. They might sue the non-buyer for the difference.
Second, even if they win, they have to collect. People buying a house may not be easy to collect from – most of their available funds are locked up in that.
Third, the house may be tied up in the court case, thus interfering with selling it. Even if not legally prevented from selling, the fact that it is involved in a court case may make some buyers look at other houses with no such complications. Just learning that one buyer has already backed out of the deal might make some buyers hesitant. So the general recommendation is to keep the deposit and move on with finding another buyer.
Assuming there are no mitigating circumstances re refusing to sell the buyers can sue the seller for specific performance. The can also sue for their legal fees and related expenses. If a buyer has the financial horsepower and determination to file against the reneging seller they can force the sale.
In some real estate contracts there is language that limits damages for the seller in the case of non-performance to loss of the deposit. This is one reason why it’s not a great idea for sellers to accept tiny deposits. Contract language also often dictates that the buyer and seller attempt mediation before going to court.
If a Realtor is involved, they will sue and get their commission.
In my 26 years of real estate, this only happened once: A couple was supposed the buy a house, but they split up right before the closing. The husband came to the closing to say “I’m not signing anything with that Bitch.” Lawsuits ensued.
We also had a loverly case where a (supposed) husband ans wife were buying a house. One the day of the closing, the husband’s attorney got a phone call: Hi. I’m the Buyer’s real wife. his girlfriend is using my information. If you go through with the closing, I will sue everybody’s asses off."
When the couple came in, the attorney told the husbanf “I got a call from you wife today.” Turns to girlfriend: “Can I see some i.d.?” The couple got up and walked out. Again, lawsuits.
Emphasis mine.
The generally non-refundable is not correct. It is generally refundable if items are discovered between the contract date and the closing date that were not previously disclosed to the buyer. I.e. inspection items that the seller will not correct, etc. If the two parties cannot come to terms on modifications to the contract, change in price, etc. Then the earnest money is generally refunded to the buyer.
My understanding is that generally the first stage is an offer, which includes some earnest money. If the offer is accepted, then there’s a period of time for a home inspection and negotiations on repairs and final price based on what was found in the inspection. After the negotiations, there’s a final purchase and sale agreement. Since there’s almost certain to be something wrong with the house (even if trivial), if a buyer was really determined to get out of the offer, they could probably take a ridiculous enough position to make the negotiations fail and never reach a purchase and sale, in which case the earnest money is returned (the seller probably has some ability to force failure, too). Once the P&S is signed, though, it would take something very extraordinary to back out-- the buyer should already know everything about the house at that point.