I signed a contract for the purchase of a single
family house, and settlement is scheduled for this
week. The seller's broker has just advised me that
they do not plan to sell us the house. No reasons have
been given, but we suspect that the seller now
believes that the contract sales price was too low.
What should we do?
Answer: There is a remedy in the law called "specific
performance" and I recommend that you seriously
consider filing such a lawsuit as soon as possible.
Specific performance is called an "equitable remedy."
This means that a Judge has to assess the situation
and weigh the equities of both the buyer and the
seller. Based on the facts of the specific case, the
Judge then has the right to order the seller to convey
the property to the buyer.
In an interesting 1980 District of Columbia Court of
Appeals case involving the famous singer Roberta
Flack, that Court stated:
"Specific performance of a contract is ordered
when the legal remedy, usually money damages, is
deemed to be either inadequate or impracticable. When
land is the subject matter of the agreement, the legal
remedy is assumed to be inadequate, since each parcel
of land is unique; thus, equitable jurisdiction in
this case is firmly established."
In some states, the mere filing of such a lawsuit will
put a cloud on the title to the property, thereby
depriving the property owner from selling the property
to a third party. In some states, however, you (or
your attorney) have to file a document called a "lis
pendens," and have that recorded among the land
records where the property is located. This will put
the world on notice that there is a "cloud" on the
seller's title.
In order to be successful in such a lawsuit, the
Plaintiff (in our case the buyer) must prove that he
is "ready, willing and able" to go to settlement. In
most cases, that means that the buyer has obtained the
necessary financing in order to purchase the property
and in fact has shown up at the settlement attorney's
office prepared to take title to the property.
But what if the seller has thwarted the ability of the
buyer to go to closing? A recent District of Columbia
case has given us considerable guidance. In a case
entitled Independence Management Company v. Anderson &
Summers, LLC., the facts were as follows. A contract
was entered into between buyer and seller for a piece
of real estate. There were tenants in the property.
Under District of Columbia law, those tenants have
rights to purchase the property and those rights take
precedence over any third party contract.
When the buyer learned that the tenants were
interested in buying, it suspended its efforts to
obtain financing. However, when the tenants ultimately
opted not to purchase, the seller demanded that the
purchaser immediately go to closing. When the
purchasers did not appear at the settlement table, the
sellers declared the purchaser in default.
The purchasers filed a suit for specific performance,
which was granted by the trial court. On appeal, the
DC Court of Appeals affirmed the lower court decision.
According to the Court:
"It is true that (purchaser) presented evidence
only that it had obtained proposed financing
commitment letters. (Purchaser) does not assert that
it actually obtained financing enabling it to settle
... This is hardly astonishing. Under the
circumstances, ... it would have been futile and
wasteful for (Purchaser) to obtain financing for a
closing in which the seller was not going to
participate ..."
The Court concluded that "the law does not require the
doing of a futile act." (DC Court of Appeals, decided
May 12, 2005).
Thus, this case makes it clear that if the purchaser
-- through no fault of its own - is unable to go to
closing, this will not prohibit that purchaser from
obtaining a court order for specific performance.
You have suggested that the reason that your seller is
not willing to go to settlement is because the
purchase price may have been too low. Once again, the
Courts have addressed that issue.
In the Roberta Flack case, the Court stated that "the
offerer is master of his offer, and ... Flack must
have considered real estate values when she stated her
asking price to (the buyer). And this concept has been
upheld even in the Supreme Court, where the Court
stated:
"... unless the transaction is unconscionable, it
is not the eligible function of the court to liberate
those who apprehend that they have engaged in a bad
bargain."
Thus, you should seriously consider filing that suit
for specific performance against your seller. But
before you file, there are some issues which you must
consider.
* Will your lender will preserve your loan? Will
interest rates go up by the time the lawsuit is
resolved? Will you be able to get damages -- in
addition to specific performance -- from the seller?
* Review your contract carefully with your
attorney. Does it provide that in any such litigation,
the Court can award attorneys fees to the prevailing
party? If your contract does not contain such
language, even should you win, and get an order for
specific performance, you will not recover the costs
of your litigation.
* Litigation can be time consuming if the seller
does not cave in when served with the lawsuit. Are you
prepared to wait a long time before you get a court
order -- which may or may not be favorable.
While it appears that you may have a good case,
litigation is always a gamble; sometimes you will win,
and sometimes you may lose.
Review all issues before you make the plunge into the
legal system. The system works, but there is an old
adage that "justice delayed is justice denied."
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