We often hear stories about buyers defaulting on contracts to purchase real estate. They "walk", they don't deposit their earnest money, they don't apply for their mortgage on time, they don't close by the closing date. But how often do you hear about SELLERS defaulting?
First, let's get the definition of default. According to the Florida Association of Realtors Residential Sale and Purchase Contract, Default is: "Seller fails, refuses or neglects to perform this contract".
I am not an attorney, but some examples of what seller default might be: failing to act on a required repair item, neglecting to remove tenants if specified in the contract, refusing to close.
Well, I had two cases in the last week. One example: I represent the buyer and the seller has decided not to do a required wood rot repair. The seller claims "he has done enough improvements" and is not doing any others. "The buyer should be happy."
According to the Florida contract, in the case of seller default, the buyer may "choose to receive a refund of buyer's deposit, without waiving the right to seek damages, or to seek specific performance". The contract goes on to outline the methods of dispute resolution.
The question is, with such a "minor" default, who would bother? If the wood rot is $100, should the buyer delay the closing to go through mediation, especially when he needs a home? If the seller did not leave the house broom-clean, if he failed to remove tenants on time, if he removed a small "attachment", should the buyer go to arbitration? If the closing were delayed a few days, and their is no per diem penalty paid, oh well?
In Florida, on both the buyer and seller side, these are not uncommon occurences. The problem is, if no one enforces the contract, nothing will change. You see, it is not normal custom in Northwest Florida to have individual attorney representation for our closings, like many other states. Thus, in the case of a default, the buyer or seller would have to spend extra monies to hire an attorney. They usually won't.
That is why Florida real estate transactions tend to have many of these nuisance defaults, and no one bothers. What say you?
It's Wendy!
Wendy Rulnick, Broker, Rulnick Realty, Inc.
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I did once have a seller default in the manner of deciding he just was not going to sell the house after all. My buyers were really disappointed and were actually considering suing him for specific performance as it was kind of a unique house that they wouldn't easily be able to find a replacement for. Then we found out that the reason he was not going to sell was that when he traveled to Italy to get married he found out his fiancee was breaking off the engagement. After learning that, my buyers felt so sorry for him, they let the sale terminate as he wanted....
Sometimes as hard as it might be it could be best if the buyer can get their earnest money returned and just go find another house.
Wendy I deal with pretty well to do buyers and sellers...they usually perform to the contract, but will get legal council involved out of sheer principal if push comes to shove.
Hi Wendy... I would like to see more enforcement of contracts, unfortunately, sometimes it is not about what SHOULD happen and is more driven by the cost-benefit continuum. Like you said hiring an attorney to explore the remedies available to a buyer or seller may outweigh the basis for the default and most buyers or sellers don't seem to want the hassle.
I quess that this is why we often see these "minor" expenses paid out of the agents pocket. The expense of hiring an attorney would far exceed the cost of just doing the repair or delaying the closing.
Great points Wendy. One of the reasons we strongly recommend areal estate attorney to handle the closing for our buyers. Small additional cost, but it can save a lot in the long run.
Nancy - Nice buyers :)
Richard - Probably so, but what about all the expenses, for example, inspections, appraisal?
Steve L - I think attorney involvement is wise.
Steve S - I understand your point, but then, what's the point of the contract?
Jimi - I like to avoid those :)
Gabe - But when you have a real estate attorney as closing agent, that is still not "personal representation" of each party. Their suggestions might go further, but I don't think have the "ooomph" of attorney to attorney interaction to resolve these issues.
Wendy...equally here in GA the attorney represents the lender in a closing. I think if the property is unique and one-of-a-kind, then some "enforcement" might be necessary. Also, if the Buyer has already incurred a lot of expenses in getting ready to buy (what if they have sold their home!) then legal action may be needed.
In this sue-happy world we live in, I'd rather see something worked out, or let's just get them another home, and quick!
Wendy,
I've had it happen.
I bought a house 3 days before the broker's listing expired, then showed it to Brenda. It turned out she knew 3 of the neighbors, we said hello. I went deer hunting for a long week end.
When I got back my answering service had several calls from our soon to be neighbors. I rushed to see them. It seems 3 others had told them they bought the property over the week end!
The listing broker called the seller. He admitted he got 6 offers the morning after the listing expired and had infact accepted 3! The broker told him he had already sold it to me for full price. But, the seller said all 3 offers were for more money! He'd also signed a new listing agreement with each offer.
He picked the wrong buyer to default on. I borrowed a type writer (Sort of a people powered combined keyboard and printer.) and typed out a les penance. A quick stop at the recorders office and I'd stoped all closings until the seller dealt with me!
Then I filed suit. Two weeks later I found myself in front of the etichs committee, my one and only time. The buyer's attorney and he started shouting. The chairman turned to me. I explained I saw the house on a Wednesday and had an accepted full price offer from the seller 45 minutes later. The listing expired at midnight that Friday, the seller had 6 offers before 9 on Saturday. I explained I filed suit, the seller started shouting I clouded his title!
They asked the seller if he'd signed the offer? He said yes.
They then politely suggest he settle with me before we got to court.
6 days later I won a summary judgment in less that 15 minutes in court. I got the house!
Bill
For the recorded: I didn't partisapte in the commission. I disclosed in writing that I was a real estate broker.
I'm not an attorney, I would never file a les penance for a client, but I have done so at the direction of and for client's attorneys.
If the deal is incredible or the seller or his agent is a flake I've often filed a memo of undisclosed interest, it's much friendlier and clouds the title. It comes down to knowing your craft and who you represent.
Hi Thomas - Actually, in Northwest Florida, the borrower's lender does not have an attorney at the closing, either. There is usually -0- personal representation. I'd like to see these situations worked out, but when no one puts up $$$ for attorney fees, there are violations making much of our contracts meaningless...
Bill - That is probably one of the most insane real estate stories I have ever heard! Good for you for acting as your own attorney and making it work! I hope you loved the house.
Wendy,
It's in my first book.
Other than the les penance my attorney handled the suit. Of course he was my business partner for many years. We shared offices with other attorneys for 7 years.
Three brokers and their salesmen were totaly suspend from the Board the others were temporally suspended.
Quite frankly, I have noticed quite a trend in clients who do not take the contract seriously. While this is not quite what you are blogging about, I do think that it is along the samelines. (Maybe I should read Bill's book, too).
I think a lot of clients treat a contract to purchase a home like a cell phone contract......they think they can just not pay and nothing will happen.