Real Estate Specific Performance
Every so often, real estate transactions can go bad. This often results in real estate specific performance demands by one or both parties.
When a Buyer or a Seller wants the other party to follow through on a signed contract but they don’t want to, they take it to the courts and they sue for Specific Performance. The practical reality is, that it often takes years to resolve and there are many contractual loopholes that often come into play such as “he said – she said…” Obvioulsy it is best if all parties agree. It is common for the seller to refuse to close on their real estate transaction with the a buyer because they have another buyer that will pay more waiting in the wings.
Once a seller and buyer agree on a price for a property, a real estate contract is signed. The contract contains provisions each must comply with – – -provisions that are legally binding. If problems arise during escrow, particularly if things turn nasty, one party may look to legal remedies to force the other party to do something.
Specific performance is a legal demand that a party perform some act. Although the theory can be applied to many situations, it is most often seen in real estate transactions. This is because courts have determined that property is unique, and specific performance is often more valuable than monetary damages.
In the case of real estate, specific performance demands often involve the conveyance of title. Having met the conditions of the contract, the buyer demands the seller convey title to them. Why would sellers not do this automatically? Situations can include seller remorse, general “flakiness,” or the realization the seller accepted far too low an offer compared to what the market would produce.
Specific performance demands are a two sided situation. Courts often are reluctant to grant them because human nature is such that the defendant will often poison a situation by damaging the property or causing something that will mess up or cloud the title. This does not mean the seller is off the hook.
Buyer’s Remedy of Specific Performance
Specific performance is a form of relief requiring the party who breached or defaulted on the contract to fulfill the terms of the contract. If the seller is able to perform her agreements in the contract, but is unwilling to do so, the buyer may bring a lawsuit for specific performance. The courts generally recognize that each parcel of land is unique and that a monetary award would be inadequate and will order the seller to convey the property to the buyer, according to the terms of the contract.
A buyer may also obtain specific performance from the seller when the seller can’t convey all of the property covered by the contract, such as when the parcel owned is smaller in area than that agreed to be sold in the signed contract, or when some defects in title are uncovered. The seller may be compelled to perform to the extent possible, with an abatement (reduction) of the purchase price to compensate for the defect or deficiency. The amount of the abatement is usually equivalent to the value of the property not conveyed.
When a lawsuit is brought for specific performance of a contract to convey real property, the plaintiff (the person bringing the suit) may file a notice of pendency to prevent any transfer of the property to a third person until resolution of the claim. The notice is sometimes called a notice of lis pendens, and it is usually filed in the recorder of deed’s office. The effect of filing this type of notice is that the seller won’t be able sell the property to another buyer while the lawsuit is pending. Such powerful tools can be used by your attorney to effect a faster, out-of-court settlement that may be the solution that you are seeking.
To obtain specific performance, the buyer must show that he or she was ready and able to perform at the closing.
Seller’s Remedy of Specific Performance
A seller of real property may file a lawsuit against a defaulting buyer for specific performance of the sales contract. The relief actually obtained by the seller in this kind of lawsuit is the recovery of money because the court can only enter a judgment requiring the payment of the purchase price amount.
A seller who retains the buyer’s down payment can still sue for specific performance. However, if the contract provides for a specific, exclusive remedy in the event of the buyer’s breach, the seller is precluded from bringing a lawsuit for the purchase price. For example, in most states, the buyer’s deposit is considered earnest money, which suggests an agreement of liquidated damages in the event of a breach of the sales contract, and specific performance can’t be ordered.
In all cases, specific performance is granted at the court’s discretion. The court will only grant such relief if there is a valid contract between the parties and if the buyer has signed the contract. Moreover, all of the conditions of the contract applying to the seller must have been performed. The seller must be ready, willing and able to comply with the contract, By being prepared to convey to the buyer marketable title (which means no defects in the title being conveyed) to the quantity of land or improvements that he contracted to sell.
We Have Other Tools That Might Result in a Positive Resolution
While courts are hesitant to grant specific performance demands, they are not hesitant to enforce real estate contracts. Depending upon the situation the court may allow lis pendens. The lis pendens represents the equivalent of the monetary damages suffered by the buyer. More importantly, it is recorded against the deed of the seller’s property. This effectively forces the seller to pay the buyer if the seller ever hopes to sell the property. When a title insurance company reviews title for any subsequent sale, it will notify the new purchaser of the lis pendens and refuse to issue title insurance until the lis pendens is rectified. With no title insurance, the seller is going to have an extremely hard time selling the property. In fact, it will be nearly impossible as it is difficult to imagine any buyer that would want to get involved in an ongoing dispute with what will be a clouded title and no title insurance.
Good, Sound Advice
When a purchase and Real Estate sale starts to unravel, seek legal advice. While the other party may have breached the agreement, the wrong response (i.e., refusing to perform your obligations) can destroy your chances for success on a subsequent lawsuit. Proper legal advice can also help you ascertain your legal right to seek specific performance.
If you have any questions on the remedy of specific performance or lis pendens, contact Real Estate Attorney Edwin Fahlen.