Suing seller who backed out of contract

51 Replies

I had a property under contract and the closing documents were sent to the seller and she seems to be refusing to sign and return. She is ignoring phone calls and clearly avoiding me.

I'm certain that she's changed her mind and seems to think if she ignores me, I'll disappear.

The contract agreement stated that I, the buyer would pay all legal and closing costs.

Thus far I've accrued over $2000 in costs for legal fees, title search and sight survey. The closing attorney told me to sue for costs in the small claims court. Are there any other costs/damages I sue for?

Has anyone else ever had a similar experience?

In my experience it comes down to whether or not you have a signed a legally binding purchase and sale agreement. Basically (in MA) you are spending money at your own risk until you have a written binding agreement. Im not a lawyer nor do I know your state specific laws but without a signed agreement you are out of luck. Can you provide any more details? 

Yes, but deals fall through all the time.  That is the way most investors create customer relationships so that if a buyer walks you can pitch the deal to several other buyers as a backup.

I've never heard of suing for cost/damages. If you choose to go forward with in (personally I would not sue) , spend double the amount of time finding a new buyer.

It all depends on what you had her agree to in the contract.  In your state there may have been conditions in the contract about specific performance and liquidated damages.  I would think the seller would be liable for specific performance where you could get your costs back and possibly sue to get her to finish the contract.  It all depends on how far you want to go.  Again though it really comes down to what you had in writing.

Dan Mackin, Real Estate Agent in CO (#FA.100056958)
720-971-7139
Originally posted by @Nat Chan :

I had a property under contract and the closing documents were sent to the seller and she seems to be refusing to sign and return. She is ignoring phone calls and clearly avoiding me.

I'm certain that she's changed her mind and seems to think if she ignores me, I'll disappear.

The contract agreement stated that I, the buyer would pay all legal and closing costs.

Thus far I've accrued over $2000 in costs for legal fees, title search and sight survey. The closing attorney told me to sue for costs in the small claims court. Are there any other costs/damages I sue for?

Has anyone else ever had a similar experience?

Put it in the hands of your lawyer. It's a breach of contract as there is a failure to perform.

I would give them one last chance to perform (with the threat that you are putting it in the hands of your lawyer) and then take legal action if you feel that strongly.

Originally posted by @Rob Beland :

In my experience it comes down to whether or not you have a signed a legally binding purchase and sale agreement. Basically (in MA) you are spending money at your own risk until you have a written binding agreement. Im not a lawyer nor do I know your state specific laws but without a signed agreement you are out of luck. Can you provide any more details? 

 Yes, we have a signed purchase and sale contract. The closing attorney said its legally binding.

The seller just hasn't signed the HUD and some other closing docs.

Originally posted by @Ericka Parrott :

Yes, but deals fall through all the time.  That is the way most investors create customer relationships so that if a buyer walks you can pitch the deal to several other buyers as a backup.

I've never heard of suing for cost/damages. If you choose to go forward with in (personally I would not sue) , spend double the amount of time finding a new buyer.

 You didn't read my post properly.

Almost all purchase contracts have a section that deals with the buyer's remedy if the seller fails to perform.  That typically has two choices:  liquidated damages or specific performance.  Liquidated damages means the buyer gets the EM back.  Specific performance means the buyer can sue to force a sale. Liquidated damages is the common selection on this choice.  What does your contract say?

If your contract says liquidated damages you can, of course, still sue.  But you're unlikely to prevail.  If it says specific performance you may be able to make a case.  Of course, even if you win, you then have to collect, which is not easy, either.

A stern letter from your attorney threatening action might get some response from the seller.

I have to agree with @Ericka Parrott .  This is just part of the deal when you're buying real estate.  Not all deals close and you often are out the costs you spend prior to the deal falling apart.  It happens in lots of businesses.  Looks like the AT&T/Comcast merger may get blocked and those companies have certainly spent millions of dollars working on this deal.  Sales folks spend lots of time and money courting customers only to never close a deal.  This is just part of what you agree to deal with when you start making offers.

I would say if your lost is minimum, then move on. There's no reason to dwell on a lost deal because there are always good deals out there. But if you really want a legal solution, the best way is to ask a lawyer. With the contract in hand I am sure there should be something you can do. But I am not sure it will worth the effort. 

Originally posted by @Jon Holdman :

Almost all purchase contracts have a section that deals with the buyer's remedy if the seller fails to perform.  That typically has two choices:  liquidated damages or specific performance.  Liquidated damages means the buyer gets the EM back.  Specific performance means the buyer can sue to force a sale. Liquidated damages is the common selection on this choice.  What does your contract say?

If your contract says liquidated damages you can, of course, still sue.  But you're unlikely to prevail.  If it says specific performance you may be able to make a case.  Of course, even if you win, you then have to collect, which is not easy, either.

A stern letter from your attorney threatening action might get some response from the seller.

I have to agree with @Ericka Parrott .  This is just part of the deal when you're buying real estate.  Not all deals close and you often are out the costs you spend prior to the deal falling apart.  It happens in lots of businesses.  Looks like the AT&T/Comcast merger may get blocked and those companies have certainly spent millions of dollars working on this deal.  Sales folks spend lots of time and money courting customers only to never close a deal.  This is just part of what you agree to deal with when you start making offers.

You are always THE MAN Jon. The closing attorney made it sound like it was a pretty easy task to sue and claim legal costs incurred. 

We know the seller won't pay up but she said a lien can be placed on the property so I will recoup the money whenever the property does eventually sell, plus 6% interest.

@Nat Chan If you used the current FARBAR As Is contract, paragraphs 15 and 16 spell out your remedies and procedures.  You can sue for specific performance Or for costs.  You must  first attempt Mediation , as prescribed, before filing suit.  If the EM is being held by a RE Broker, there is a mechanism for the return, assuming the seller won't sign the release.  Otherwise, you need to go to court, if an agreement can't be reached.  With any other agreement, things will be different of course.  You can't "place a lien" on her house, until you receive a Judgment, in court.  You could file a notice of interest in the Clerk's office to prevent an immediate sale of the property (except maybe in Dade, where I hear the clerk isn't allowing these to be filed any more, due to abuses by "investor" scumbags).

I'd go with Wayne on this one and sue for specific performance.  I've also heard of buyers down here filing Lis Pendens' against sellers who back out at closing. I don't know how true that is but it may be worth your time to look into it. 

A notice of interest may be more feasible being that you've actually spent money here and have documentation to go along with it. 

Originally posted by @James DeRoest :

Put it in the hands of your lawyer. It's a breach of contract as there is a failure to perform.

I would give them one last chance to perform (with the threat that you are putting it in the hands of your lawyer) and then take legal action if you feel that strongly.

I spoke to the closing attorney and asked her to send a letter outlining the breach of contract with intention to take legal action if they fail to close. Her response was pathetic, in my opinion-

"I feel like it may be an ethical conflict since I am also the closing agent and I have to be careful how I present myself in this situation. I think it would be more proper and more effective if it came from another attorney. I can recommend you to an attorney who would prepare it for a reasonable fee."

Originally posted by @Wayne Brooks :

@Nat ChanIf you used the current FARBAR As Is contract, paragraphs 15 and 16 spell out your remedies and procedures.  You can sue for specific performance Or for costs.  You must  first attempt Mediation , as prescribed, before filing suit.  If the EM is being held by a RE Broker, there is a mechanism for the return, assuming the seller won't sign the release.  Otherwise, you need to go to court, if an agreement can't be reached.  With any other agreement, things will be different of course.  You can't "place a lien" on her house, until you receive a Judgment, in court.  You could file a notice of interest in the Clerk's office to prevent an immediate sale of the property (except maybe in Dade, where I hear the clerk isn't allowing these to be filed any more, due to abuses by "investor" scumbags).

 Mr Brooks, you're always a shining light. The contract is indeed the current FARBAR.

I know you can't place a lien, without a judgement. I didn't know you had to go through mediation first. That is helpful to know. I am going to move forward with this process straight away. Thank you so much for your helpful information.

Ouch that is a tuff one Nat. Sometimes going after someone is more trouble that its worth. A worst you have a viable business expense, not to mention an opportunity to learn from ones own experiences. 

Best wishes.

Originally posted by @Davon Lowery :

Ouch that is a tuff one Nat. Sometimes going after someone is more trouble that its worth. A worst you have a viable business expense, not to mention an opportunity to learn from ones own experiences. 

Best wishes.

 Yes and no Davon.

100% agreed that it's a fantastic learning experience. However I will absolutely be taking this matter as far as I can. I am truly hoping the seller will pull through and complete the sale through the mediation process.

This is truly the purchase of a lifetime and I have put in absolutely countless hours in various facets of this transaction.

@Nat Chan
I ran into a similar situation in acquiring an estate property for rehab. The seller did not live there but had been keeping it, vacant, for years out of attachment to his late grandmother. He offered it for sale when he got sick and needed funds.

But after we signed a purchase contract and were about to close he suddenly changed his mind. His health power of attorney told us he was on a new medication that made him irrational. We had a couple of tense weeks wondering whether we could seal the deal.

Apparently the seller went to an attorney to try to get out of the deal. I don't know what exactly was said but suddenly the deal went back on track and we closed. I suspect the attorney told him he was in breach of contract and would be exposing himself to a lawsuit, and this is what woke him up to the consequences. This was in Maryland, BTW.

So yeah, I think you've got a breach of contract and grounds for a lawsuit. The suit doesn't have to just be about recovering the monetary costs but the time and difficulty it has cost you etc. You get an attorney to write a tough letter promising that you will go after her if she doesn't deliver--something that could rock the boat a little, and maybe motivate her to call her own attorney.

I am sorry you are having to deal with this uncertainty and hope it resolves soon.

Best,
Nancy Roth

Thanks so much Nancy. That's very useful and encouraging.

Excellent article on BP regarding this issue-

http://www.biggerpockets.com/articles/968-the-5-steps-to-prosecute-a-successful-lawsuit-for-specific-performance

@Nat Chan Have to sort of agree with the closing agent.  They are a neutral, third party facilitator.  While they could send a letter stating the general ramifications of not closing, the letter would be best coming from your attorney.  It could be a stronger "this is what's about to happen" letter.

Nat,

It may not be what you want to hear, but the closing attorney is correct.  She would have an ethical conflict (as defined by law) in presenting your interests adverse to the seller.  That might seem unfair to you, but it serves a legitimate purpose and means she is a person of integrity.  You should think more of her for taking that position, not less.

As for the lawsuit, I litigate regularly in 4 states.  If $2000 is all you stand to recover, you are probably throwing good money after bad.  It will cost you more in the long run and be more headache than it is worth.  A local attorney will probably charge you more than $2000 just to read the contract, talk to you about the deal, and draft a demand letter.  Also, you should always keep in mind that regardless of what a contract says, courts like to take the middle road.  Your contract may say "prevailing parties legal fees paid by other party" or something of that kind, but in the unlikely event the court awards legal fees, it will almost certainly reduce the amount they make the other party reimburse you.  Plus, your money is tied up without interest (barring pre-judgment interest award) while you are litigating the issue.

Plus, suing will make the seller angry and she could bad mouth you to others, effecting your ability to get future deals.  The last thing any investor wants is a bad reputation (deserved or not). 

Unless there is a lot more money in the deal ($100K +) and your contract allows specific performance remedies, I would write it off as a business loss and move on to the next deal.  I know that sucks, but that is the unfortunate reality of litigation.  You don't get the justice you deserve, you get the justice you can afford.

Best wishes,

Brian

My opinion is that you've gotten too emotional to do this deal. I've got a broker that likes to say, a deal of a lifetime comes by about every week or so. I'd say if it isn't a castle on the Spanish coast, its probably not a once of a lifetime deal.

I would suggest you look at why you are emotionally so invested in this deal. My partner and I are having a tough time on a sale, and she wants to cancel the deal because of a hundred little things. After hours of conversation I finally discovered it came down being bitter about the situation, and wanting to punish someone for it.

My answer to her was, is a 6 figure payday worth sticking it to someone?

To apply the situation to you;

1) What makes this the deal of a lifetime?

2) Is proving your point worth being in court for the next 6 months?

3) What other hiccups occurred during this transaction that might be indicators of trouble during the process of this transaction?

I think the majority of posters here sympathize with your situation, and if you've transacted enough deals you've lost money on transactions falling through. Its just a cost of doing business and if you don't learn to let go the stress will get to you.

What about filing an affidavit of contract to cloud the title? Then whenever the seller is wanting to sell they have to pay you to go away in order to get clear title.  

That is not a bad idea Joe!  Of course, it will only work for as long as the Statute of Limitations on a Breach of Contract claim in the properties locations jurisdiction.  But that is likely 2-3 years.

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Join the Largest Real Estate Investing Community

Basic membership is free, forever.