The closing is the meeting between the buyer and the seller, at which time all remaining documents related to the sale are signed. The deed to the house is transferred from the seller to the buyer. Title insurance is paid, the mortgage papers are signed by the buyer, and possible transfer taxes are paid to the state. Additionally, the buyer will pay the seller for an miscellaneous expenses, such as appliances or furniture that had been previously agreed upon and any real estate taxes that the seller had prepaid.
What Is A Remedy?
A remedy is a court-ordered means of enforcing one party's rights or redressing a wrong committed by another party. Typically, a sales contract to purchase a building drafted by a lawyer defines the available remedies in the event of default by either the buyer or seller. Once a contract is formed, both the buyer and seller agree to perform specific obligations to "close" it (i.e. complete the deal). Refusing to close on a sales contract is an example of a default. The injured party may then bring a lawsuit seeking a remedy for its injuries. Remedies may be sought in both commercial and residential purchase-sale agreements.
What Remedies Are Available If The Buyer Defaults By Refusing To Close?
If the buyer of a building defaults, the remedies often available to the seller include:
- Liquidated Damages: In most building purchase contracts, a buyer will put down a deposit on the building he wishes to purchase. Such contracts often allow the seller to retain this deposit as liquidated damages (i.e. predetermined damages assessed against one party if it breaches the contract) in the event of a buyer's default.
- Lost Profits: If a buyer defaults, the seller can sue for the difference in money damages incurred as a result of failing to close the contract. This is calculated as the difference between the contract price and the lower fair market price (assuming it is lower than the contract price). For example, suppose the contract specifies that the buyer pay $750,000, but the fair market value of the property is only $700,000. The seller could try to get a judgment awarding the $50,000 in lost profit. It is extremely uncommon for a court to order a buyer to complete the purchase by paying the entire purchase price.
What Remedies Are Available If The Seller Defaults By Refusing To Close?
If the seller of a building defaults, the remedies available to the buyer include:
- Specific Performance: If there is nothing in the contract dealing with default, then in most states, if the seller defaults, the buyer can go to court and seek an order of specific performance. This order commands the seller â?? under penalty of being held in contempt of court â?? to transfer the property to the buyer upon payment of the agreed purchase price.
- Monetary Damages: Assuming that the fair market value of the property is higher than the agreed-upon contract price, the buyer can sue for the difference between the contract price and the fair market price. For example, if the contract has a purchase price of $500,000 and you can show its fair market value is $550,000, a judge may award you the $50,000 difference.
- Consequential Damages: The buyer may also be able to recover consequential damages (i.e. costs incurred as a consequence of the buyer entering into the contract) such as mortgage application fees and appraisal fees paid in reliance on the contract.
Do I Need An Attorney If The Other Party In A Building Sales Contract Is Refusing To Close?
In the event that a buyer or seller defaults on his obligations under a building sales contract, an experienced real estate attorney can determine what remedies are available to you and the likelihood of recovering damages. Additionally, an attorneyâ??s assistance is very helpful when drafting such a contract, because he can make sure to include clauses providing for remedies in the event of specific defaults.