Real Estate Disputes – When the real estate world is upside down and you’re suing over a closing
Rising interest rates have sent the real estate world into turbulence. It causes people to have second thoughts about their deals. However, when you find yourself considering litigation over closing, there are a few things you may want to consider first.
- What are the most appropriate remedies for you (or the other side)?
Common remedies include damages, abatement, termination of contract, and specific performance.
For example, if a buyer wants to back off a deal for no good reason, the seller may consider damages or specific performance. If the seller subsequently sells the property to a third party for a lower price, the seller may ask for damages to compensate for the difference (after offsetting the deposit); or the seller can force the other side to close the deal and pay the full price by asking for specific performance.
As a buyer, if you find out the piece of property you are going to buy is different from what you have agreed before closing due to misrepresentations, defects, or newly suffered damages, you may ask for the problem to be fixed, an abatement, or even termination/rescission of contract. However, it is rare to be entitled to termination/rescission of contract. You may find yourself in breach of the contract if you want to rescind the contract due to some minor problems that could have been remedied by an abatement.
- Is termination/rescission of contract justified?
When a party tries to back off from a deal, it is quite often that the party will try very hard to find a good reason for doing so, such as misrepresentation, defect, damages, or so. However, as mentioned above, it is rare to be entitled to termination/rescission of contract, and it is usually a case-by-case decision. For example, misrepresentation of square footage may be a sufficient reason in one case, where the discrepancy is material and the buyer is inexperienced, while not so when a sophisticated buyer has already inspected the property.
There are situations where a buyer may have to back off from a deal, especially when the buyer could not secure financing as they had expected. This is especially true during a turbulent market (frenzy market when properties are overpriced, or a down-turn market when properties’ prices are dropping quickly), as financing institutions, which are usually more conservative about the appraised value of a property, may give a low appraisal value of the property and refuse to loan sufficient funds to close the deal. If that is the case, the buyer may not have many options but to walk away from the deal.
- Should I try to get a Certificate of Pending Litigation?
A Certificate of Pending Litigation (CPL) is essentially a notice or warning to the public that the property is the subject of pending litigation. It will make a piece of property almost unmarketable. It will help the buyer to protect their interests in the property. To obtain a CPL from the court, the buyer has to show, among other things, that the land is unique to the buyer, and the buyer’s interests can not be protected or compensated by other means. CPL is a powerful tool, and the court will not allow the parties to abuse it. Improper use of CPL may lead to liabilities.
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Contact Hum Law Firm today for advice if you are dealing with Real-estate Litigation.