Breach of Contract in Real Estate Transactions

Filed under: Real Estate Law

The key element to any real estate transaction is the sales contract. When buyer and seller agree upon terms such as price, time period to close the deal, payment of closing fees and other important factors, each party signs a legally binding agreement. This sales contract may also contain contingencies, or clauses which state that the contract will be void or voidable if certain conditions are not met. Both buyer and seller can include certain contingencies in the contract.

It sometimes happens that a transaction falls part, and the contract is voided, due to the fact that one or more contingencies were not met. This is not a breach of contract because the contract clearly stated that the transaction would not proceed under these circumstances.

However, sometimes the buyer (and occasionally the seller) backs out of the agreement for reasons not covered under the contract’s contingencies. This does indeed qualify as a breach of contract.

If the buyer is backing out, the seller may wish to take the case to court. After all, they are understandably upset at the inconvenience this situation has caused to them. But before rushing to court, sellers should seek to understand the reason behind the breach. Since courts usually recognize that buyers face numerous obstacles to purchasing a home – such as securing a mortgage, selling their old home, and getting together cash for down payment and closing fees – it is extremely rare for a court to force a sale to proceed in the face of a buyer’s attempt to cancel. In this case, going to court would almost certainly be a waste of time and money.

However, if the breach of contract is on the seller’s side, the reverse is not true. Since real estate is something for which the law provides that money is not an adequate substitute, a buyer who is complying with a contract can often successfully force the seller to consummate the sale. In these cases it is critical to speak to an experienced real estate attorney as soon as possible.

If the buyer provided an “earnest money” deposit when signing the original sales contract on the property, the contract often contains a “liquidated damages” provision that entitles the seller to keep that money when the contract is breached or canceled in bad faith by the buyer. It will depend, of course, on those all-important contingencies in the original contract.

Before attempt to force a sale or fight over possession of a deposit, both buyers and sellers would be wise to consult with a real estate attorney. Expert guidance can help buyer or seller decide what their next step should be.

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