Seller’s legal options when a Buyer no-shows or refuses to close
We have been contacted quite a bit lately regarding Seller’s legal options when a Buyer does not show up to closing or backs out of the deal on the eve of closing, or simply refuses to close. The answer to this question actually depends on what remedies the sales contract grants in that circumstance.
Typically, the vast majority of residential contracts in Florida are written on some version drafted by FAR/BAR, so there is some consistency to a seller’s remedies upon a buyer’s default.
Questions to consider:
Is the buyer in default?,
What is the reason (legal or otherwise) that the Buyer is refusing to close; unable to get financing (financing contingency)?,
Is the Buyer still within the inspection period?,
Has a title defect been discovered that the seller was unable to cure within the contract’s cure period?
All of the above events may give rise to a Buyer’s legitimate right to terminate the contract, and in that case no Buyer default would exist. However, assuming that a buyer default does exist, the FAR/BAR contracts set out a seller’s remedies in section 15(a), which states:
If Buyer fails, neglects or refuses to perform Buyer’s obligations under this Contract, including payment of the Deposit, within the time(s) specified, Seller may elect to recover and retain the Deposit for the account of Seller as agreed upon liquidated damages, consideration for execution of this Contract, and in full settlement of any claims, whereupon Buyer and Seller shall be relieved from all further obligations under this Contract, or Seller, at Seller’s option, may, pursuant to Paragraph 16, proceed in equity to enforce Seller’s rights under this Contract. The portion of the Deposit, if any, paid to the Listing Broker upon default by Buyer, shall be split equally between Listing Broker and Cooperating Broker; provided however, Cooperating Broker’s share shall not be greater than the commission amount Listing Broker had agreed to pay Cooperating Broker. So, in short, the seller has two remedies upon a breach:
1) Retain the deposit which was paid or agreed to be paid. (in which case that is the seller’s sole remedy), or
2) Seek to “proceed in equity” to enforce the seller’s rights. That basically means that the seller can ask a court to force the buyer to follow through with the contract, and purchase the property. Of the two remedies, sellers opt for the first in the vast majority of circumstances. The second remedy involves the filing of an expensive, drawn out, and uncertain lawsuit – and the property will be tied up for the entire duration. It is important to remember that before the seller can avail itself of any remedy, it is required by paragraph 16(b) to make an attempt to mediate the dispute. What are the take-aways from the above process? Since sellers will most often resort to retaining the deposit upon a buyer’s breach, it is important for them to ensure that the amount of the deposit is sufficient to cover any actual damages that they are likely to suffer if the buyer fails to close.
a) Many sellers’ attorneys will alter the language of the contract to allow them to recover any actual damages that they may incur as a result of a buyer default, even if greater than the deposit amount.
b) If the seller does elect to retain the deposit as its remedy, can it get the property back on the market quickly? Some sellers are concerned that signing a second sales contract while the first has not been recognized as “cancelled” by the original buyer could result in two active contracts on the property. Generally, once a party to a contract has defaulted on its obligations, the other party is no longer obligated to perform. So, once a buyer commits a material breach of the agreement, the seller is no longer obligated to honor the contract, and is free to enter into a second agreement to sell the property in order to mitigate damages. Deciding whether this is the best course of action can be tricky since it requires several legal determinations. Is the buyer actually in default? Is the default of a material term? Is there any valid excuse for the failure of performance? For that reason, before a seller declares a buyer in breach, demands the deposit paid, and enters into another contract for the property, they will likely want to consult with an experienced real estate attorney to confirm that course of action.
As always, should you have any questions regarding the foregoing we urge you to consult with a Florida real estate attorney.