1. Archive

It pays to know your legal options

(ran HH edition)

When buying or selling your home or other real estate the last thing you want is a lawsuit. But disputes often arise during the sales process, so it pays to know your legal alternatives. Sometimes the other party is just bluffing and if you call their bluff, a lawsuit can be avoided.

For example, several years ago I was in the process of buying a house when the seller's real estate agent informed me I would have to make a larger down payment to satisfy his sellers. But I politely replied that we have a valid purchase contract with a 10 percent down payment and 90 percent seller financing and his sellers can't change their minds, but if they do I will have no alternative but to tie the property up with a specific performance lawsuit and record a lis pendens to effectively prevent a sale to another buyer.

The agent, after consulting his attorney, apologized and told me he was just trying to see if he could get more cash out of me. The sale closed on schedule. I suspect there may have been another buyer who offered more for the house, but by knowing my legal alternatives I effectively called the seller's bluff. You can do the same if you know your legal remedies.

When you are buying a home, be sure to perform your side of the purchase contract on time. If a delay becomes necessary, you or your agent should obtain the seller's written consent.

To illustrate, if you have a 30-day mortgage finance contingency clause, but you haven't obtained a mortgage within the 30 days, ask the seller for a written time extension, perhaps to 60 days. Your failure to do so would mean you are in breach of contract and you then can't expect the seller to perform the other side of the sales contract.

If you are not in breach of contract, but the seller refuses to perform his side of the sales agreement, then your legal remedy is to force the seller to deliver the deed as agreed in a lawsuit for specific performance of the contract. That means the court will order the seller to perform as agreed.

Just in case the seller has other ideas, such as selling to another buyer who will pay more for the property, it is a good idea to record a lis pendens against the title. That means any buyer or lender dealing with the property does so subject to the outcome of your specific performance lawsuit.

However, sellers have several defenses to a specific performance lawsuit. They include inadequate consideration, consent obtained by fraud, mistake, misrepresentation, or unfair practices, and unreasonable hardship.

If your dispute with the seller arises after the close of the sale, such as a misrepresentation for failure to disclose defects, then your legal remedies are rescission of the sale or monetary damages. The difficulty most home buyers have when bringing such lawsuits is to prove the seller was aware of the defect and failed to disclose it. However, if the buyer can prove intentional fraud, then the buyer also may be entitled to punitive damages, interest and reasonable expenses.

When you are the property seller, if your buyer fails to complete the purchase as agreed in the sales contract, you have several legal remedies to select. In most situations your lawsuit will be for monetary damages due to the buyer's breach of contract.

However, proving the amount of your damages can be very difficult or even impossible. For example, if you eventually sell the home for as much as the first buyer offered, then you probably can't prove any serious damages except possibly extra carrying costs. However, if you sell the property to a second buyer who pays much less than the first buyer offered, then you have a valid monetary damage claim.

A few property sellers use the specific performance legal remedy to force buyers to purchase the property as agreed. That happened in the landmark case of BD Inns vs. Pooley where the court ordered Pooley to complete his purchase of an 840-unit motel for $6,825,000 (218 Cal.App.3d 289). However, since monetary damages for the buyer's breach of contract are usually adequate, specific performance is not frequently used by sellers unless either the property is unique or other buyers cannot readily be found for the property. Further information on legal remedies is available from your real estate attorney.