Legal Question in Real Estate Law in California

You've posted this in the California forum. You need to post your question in the Arizona forum.

The sellers may or may not be able to win a lawsuit, but they certainly can pursue one that will cost you substantial attorney fees to defend. Any sensible attorney will tell you to try to negotiate your way out of this QUICKLY, so the seller can re-list the property and get it sold. Just why are you asking CA attorneys for legal advice that only an AZ licensed attorney can give officially. Only an AZ attorney can represent you in court there. Consult with one soon.

I disagree that this is automatically not a California case. Depending how the contract was formed, jurisdiction may be in CA as well as AZ. If you are CA residents and the seller is an AZ resident, you might also wind up in Federal court and the court would have to decide what law to apply. So although we are not qualified to say what would happen if this was decided under AZ law, either in AZ or in Federal court, I can tell you what happens in CA. I can also tell you that the law on this kind of situation is pretty uniform. So there is a very high likelihood that it is the same in AZ, particularly since "specific performance" is a wide spread legal remedy that is essentially the same everywhere I have ever heard of.

The answer to your question in CA is that they can get the full purchase price. That's how specific performance works. They don't sue for the money specifically, they sue for a set of court orders that forces the transaction to go forward. That is what specific performance means - you are ordered to perform specifically as you agreed and they perform as agreed. So you have to pay the full purchase price and they have to deed you the property.

Unless you have the funds to pay the purchase price in all cash, however, it is unlikely that they would be granted specific performance. The court can't force your lender to make the loan to you if the transaction is tied up in court. So you would most likely lose your loan and have to apply for a new one once the court orders specific performance. The court is not likely to want to then have to police your entire loan application process to make sure you don't mess it up on purpose, but if you dont' qualify, you can't perform your part. This is why in real estate transactions specific performance is almost entirely used in cases where the seller tries to back out and the buyer wants to force the sale to go forward.

Even if they can't force you to specifically perform, however, they can still sue you for money damages. If they are forced to sell for less than you agreed to pay, that is the starting point of their damages, but only the start. Your purchase/sale agreement very likely has an attorneys fees clause. That would mean that even if they only sell for, say $10,000 less, they get that plus you pay your attorney, plus you pay their attorney. But what if they have another home lined up to buy and the proceeds of this sale are needed to close? Now you've put them in a position of breaching THEIR contract, and they can sue you for indemnity - meaning you pay what they have to pay for breaching their deal as well. Or what if they had intended to put the money in a lucrative investment. You may be liable for the lost return.

Bottom line: you first need to ask your agent if you have any other contingencies that you might be able to use to cancel the deal. If not, you need to decide whether to go through wit the deal and then turn around and sell it if you don't want it; or hire a good lawyer and roll the dice, but realizing that the dice are heavily loaded against anyone who just tries to back out of a contract.