Legal Question in Real Estate Law in California

Re: Buyer backs out after funding and before recording

Sound like a fairly routine breach of contract case. Yes, the seller will bre required to pay you damages in order to give you the benefit of your bargain. The fact that the Seller has to pay a prepayment penalty does not give him the right to cancel the escrow after all contingencies have been met. We have dealt with litigation issues like this for over 15 years and would be happy to work with you to resolve this dispute. Please feel free to contact me.

Re: Buyer backs out after funding and before recording

Your question caption says "buyer backs out..." Surely you mean "seller backs out."

You could probably demand that the seller specifically perform the contract to sell to you. If you don't want to buy any more, you are equally probably entitled to money damages for all losses you can prove to the satisfaction of a judge or jury.

"Liquidated damages" is not a concept that would apply to your case, and you may be better off because of it. However, you will need the assistance of an experienced real-estate attorney to advise you as to the amount of damages that you can claim successfully.

Re: Buyer backs out after funding and before recording

Real estate transactions can be complicated, and when they fall apart, they can become even more complicated. Your question raises several issues, and you really, ideally, should be consulting with an attorney to obtain advice specific to your situation, given the amount of money and potential damages involved.

Based upon the facts you have presented, you could - and likely should - make demand upon the seller to perform, i.e. close escrow upon the terms already agreed upon. You could threaten to sue them for what is known as specific performance of the purchase/sale agreement. Their unwillingness to close due to the prepayment issue is not sufficient to justify the cancellation of escrow.

If you truly don't want to close now, or don't wish to call the sellers' bluff, then you should contact them and arrange for a mutually-satisfactory cancellation instruction. Both of you must jointly agree upon the terms of cancellation; otherwise, the escrow holder will not (or at least, should not) cancel the escrow.

Yes, you are likely entitled to damages, but liquidated damages don't really have much to do with you. They are for the protection of the seller.

If you are using a standard C.A.R. contract, then you are bound to mediate in good faith with your sellers, before resorting to legal action. The consequences of failing to do so can be severe, including the preclusion of the right to recover attorneys' fees if you ultimately prevail in a lawsuit/arbitration.

Moreover, the contract may require binding arbitration of all disputes.

You should immediately seek out an attorney qualified to handle real estate litigation arising out of transactions. We are real estate litigators, and if/when you would like to proceed, please feel free to contact us via email or telephone.

Good luck.

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Re: Buyer backs out after funding and before recording

There are a number of things you should do, including fulfill various things on the contract, such as Mediation. A demand letter, carefully drafted would be the first thing. Be cautious and cancelling escrow if at all.

Joel

JOEL SELIK

Attorney at Law www.SelikLaw.com

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Re: Buyer backs out after funding and before recording

It appears that the seller may have breached the contract by failing to convey title, as required by any real estate sales contract. When is escrow required to close? If the seller is in breach, you have three options. (1) Seek specific performance of the contract, which means the court will instruct the seller to comply with his obligations under the contract. With this, you may also be able to seek damages such as wasted interest payments or lost rental profits. (2) Your other option would be to terminate the contract and sue for damages, such as wasted expenses and loss in market value of the property (difference between contract price and fair market value at the time of breach). (3) The third option would be to mutually cancel the transaction with the seller. This will of course require the consent of the seller. If the seller wants out of the deal, you will likely be sent an escrow cancellation instruction. Read it carefully if you do as they generally provide for a return of the deposit and a release of each party.

With regard to mediation, that is generally only required under the CAR forms if you want to recover attorney's fees. However, your interest payments will likely exceed any attorney's fees, and you likely don't have time to mediate.

How much is the prepayment penalty and when does it expire?

Feel free to give us a call or email us. Issues like this can many times be resolved with a simple phone call or letter. Depending on the prepayment penalty, and in light of the fact you want out of the deal, the seller may be willing to negotiate a fair back out deal with you.