What to Do When a Seller Refuses to Close

For a commercial investor, the worst scenario is to put time, money and energy into the purchase of a property and then find out the transaction cannot be closed because of some fault of the seller. 

When a buyer enters into an agreement to purchase a property, there is always a risk the seller will refuse to close.

Commercial investors allocate substantial resources to property selection and investment, so being aware of the remedial actions that can be taken is an important part of any investment due diligence package.

Sales Contracts

Sales contracts are typically drafted by a lawyer or real estate professional. Standard conditions are included so the buyer can gracefully walk away from the investment without penalty. Occasionally, though, one of the parties – whether it is the seller or buyer – defaults on the contract after the predetermined conditional period. The remedies for default on a sales contract are often spelled out for the buyer, with clear penalties in place that the seller can enforce. Typical contract language may include a clause whereby the seller can retain the buyer’s deposit in order to offset any damages.

Being aware of the remedial actions that can be taken is important for commercial investors.

Seller Defaults

Seller default is not as common and the language is often not clearly representative in the agreement. In most states, if the seller defaults the buyer can go to court to seek an order of specific performance.

This order commands the seller to transfer the property to the buyer on payment of the purchase price or else be found in contempt of court. There is risk with any transaction that depends on the legal system, and consultation with a legal professional should be sought prior to proceeding with this course of action.

Buyer Rights

The buyer is also allowed to sue for monetary damages, in particular for the difference between the contract price and the fair market value of the property.

This, of course, assumes that the purchase price is greater than fair market value for the property. In addition to this compensation, the buyer is entitled to seek damages, such as mortgage application fees, appraisal fees and any assessment cost associated with selecting the specific property.

As an investor seeking to finalize a transaction through use of legal means, you must understand that there is no guarantee when pursuing a court decision in your favor.

The system is there to protect the rights of both the buyer and the seller.

Sound legal advice based on all the facts will be necessary to make a prudent decision about pursuing legal recourse. 

It would be prudent to include a series of penalties against the seller in the event of a seller’s default on an agreement. This course of action makes it part of the negotiation process rather than leaving it up to a decision of the courts.

It also provides the seller with an additional incentive to close the transaction in a timely manner.

It’s best to seek the advice of both sound legal minds and real estate professionals to guide you through this complex process.

Picture Credit: Flickr

Contact a Commercial Real Estate Expert:

Contact Luke LeGrand, ePRO via email @ luke@kwcommercialsa.com or call 210-843-5853

or Link LeGrand, CCIM via email @ link@kwcommercialsa.com or call 210-789-5465

What to Do When a Seller Refuses to Close