Legal Actions the Seller of Real Property can Bring When a Buyer Breaches a Real Estate Sales Contract
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It is not a situation that sellers of real property want to find themselves in, but it is a situation that could easily happen to anyone. After months of hard work getting a property in pristine condition to lure prospective purchasers, and then finally procuring a buyer, the entire transaction suddenly unravels. Despite signing the real estate sales contract, the buyer decides to walk away or, worse yet, fails to show at closing. What is the seller to do? This Blog post will discuss that very scenario and describe the legal actions that sellers of real estate can bring against a buyer when the buyer breaches the real estate sales contract.
As discussed in last week’s Blog post, many real estate sales contracts will include a liquidated damages clause. If such a clause exists and is valid and enforceable under Florida law then it will control and that will be the amount of damages available to the seller. Typically, a valid and enforceable liquidated damages clause will state the seller is entitled to retain the buyer’s full deposit in the event of the buyer’s breach. If the buyer signed the contract but failed to pay the deposit prior to the breach, then the seller can bring an action to recover that deposit amount as damages. If the contract includes a provision for attorneys’ fees then the seller would be able to recover those costs as well.
If there is no enforceable liquidated damages clause contained within the contract, the seller will have two alternative remedies available. The first remedy is that the seller can sue to compel specific performance. Specific performance is an equitable remedy that seeks the specific enforcement of transferring the ownership of the subject property as was agreed to by the parties in the underlying real estate sales contract. Stated another way, the seller can sue to enforce the transfer of property to the buyer and then recover the full purchase price as described in the contract plus any incidental damages. Clements v. Leonard, 70 So.2d 840 (Fla. 1954).
The second remedy is that the seller may retain the subject property and sue for money damages. Id. Under this approach, Florida law is clear on how the seller’s measure of damages is calculated. The seller’s measure of damages is the difference between the agreed purchase price and the fair market value of the property at the time of the breach. Buschman v. Clark, 583 So.2d 799 (Fla. 1st DCA 1991). This amount would be reduced by any money already paid to the seller by the buyer in the form of a deposit or earnest money down. The seller may also recover other damages, such as incidental costs, if they were reasonably within the contemplation of both parties at the time of contracting and they arise as the natural and proximate result of the breach. Zipper v. Affordable Homes, Inc., 461 So.2d 988 (Fla. 1st DCA 1984).
There is the possibility that there would be no monetary damages available to the seller. This would depend upon the direction of housing prices at the time. For example, if the contract sales price is $100,000 and the appraised value of the property at the time of the breach was still $100,000 or more then there would be no damages available to the seller. See Buschman 583 So.2d at 800. As a best practice, a seller should ensure that a liquidated damages clause exists in the underlying sales contract that allows the seller to retain the full amount of the buyer’s good-faith deposit in the event of a breach. The seller should also ensure the buyer pays that deposit in full at the time of entering the contract.