My Real Estate Transaction Did Not Close, Now What?

In Legal by Maxim_ZavetLeave a Comment

If a Purchaser does not close for whatever reason such as the inability to obtain financing or simply a change of heart, on the surface the Purchaser will have breached the terms of the agreement of purchase and sale and is now liable to the Seller for their loss (or what is also known as damages).  The popular notion is that the Seller can automatically keep the deposit given under the agreement and re-sell the property to another buyer.   However, this is not quite the case.  The Seller must prove his or her damages.  In practical terms, this means if the Seller has to sell the property again and cannot get the same price or higher and therefore has to now sell it for less, the quantum of damages is easily recognizable as the difference between the sale prices.  In addition, the Seller can also claim for any out of pocket expenses such as the continuation of mortgage payments and legal costs.  Therefore if the deposit exceeds those damages, the Purchaser could have a claim for the remainder.  In new build agreements of purchase and sale, the builder would typically have a provision stating that should the Purchaser breach the agreement and not close, the deposit shall be forfeited as liquidated damages.  These provisions are rare in re-sale agreements but are obviously a good idea for a motivated Seller or even Purchaser.

But what happens if the Seller refuses to close the transaction because they received a higher price or simply because they had a change of heart?  Well in this case it is much harder for the Purchaser to prove any damages, except of course out of pocket expenses such as legal costs and perhaps moving expenses which may be negligible compared to those of a Seller having to sell their property for less.  In some rare cases, the courts can award specific performance of the contract, meaning actually forcing the Seller to sell to the Purchaser under a court order.  These cases are rare because the courts will only award specific performance (as opposed to damages) if the property is so unique and important to the Purchaser that it may be justified.

Whoever the innocent party may be in one of the instances described above, they must still mitigate their loss.  For example, a Seller who has resell their property still has a duty to sell it a market price and not purposely take a bigger loss.

Claiming money from a deposit can be quite the legal ordeal if the guilty party refuses to sign a release.  A real estate brokerage holding the deposit will never release the deposit unless a release is signed or a court order is obtained mandating them to do so.  Another important note, the courts will always look at the conduct of the parties from the date the agreement is signed to the time that agreement is breached or terminated.  Therefore, it is important for the party claiming damages or other remedies to act in good faith and have clean hands.

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