As the saying goes; I wish I had a dollar for every client I had over the past many years who came in with a contract seriously asking “How can I get out of this contract”. If I did get a dollar each time, I might be driving a Lamborghini – they are very nice cars!. It is a common occurrence for a buyer(s) to sign on for their dream home, time share or whatever he, she or they committed themselves, only to realize that they made a mistake and want “out”. Perhaps the buyer now believes the house will cost too much, the house is too small or the buyer just got offered a great job in Missoula, Montana and has to leave town right away. The reasons are endless.
What do you say when a buyer or buyers decides after agreeing to acquire the most expensive purchase in their life that they don’t want to go through with the transaction? This assumes the seller has performed, contingencies have been met and all requirements of the contract have been met. Everything is ready to “go” except the buyer. In a transaction involving the Arizona Association of REALTORS’® contract form if the buyer does not perform the seller must give the buyer a three day written notice to perform or be in default.
The simple answer is that a mere change of one’s perspective or desire to go through with the contract (what is often referred to as buyer’s remorse) is insufficient to get out of a contract. To not close or go through with the contract would be a breach of the contract leaving the buyer susceptible to losing the down payment, or liable for potentially substantial damages, or susceptible to a suit for specific performance whereby the seller obtains a court order that the buyer must perform on the contract. Buyer’s remorse is simply not grounds to walk away from a contract.
So, are there defenses which a buyer could rely upon to not perform? The simple answer is “Yes”. But, the defenses are very few in number and usually not ones available in the case of true buyer’s remorse. Those defenses are:
(1) Statute of Frauds – A contract for the sale of real estate must be in writing. If the contract was not reduced to writing the buyer may be entitled to ignore the agreement to purchase.
(2) Contract is Illegal – Courts will not place themselves in a position to enforce a contract made for an unlawful purpose. Consequently, if the contract is to pursue an unlawful purpose there are no legal ramifications if a buyer backs out of it.
(3) One of the Parties to the Contract is Incapable of Making the Contract - Contracts made where one of the parties is incapable of doing so, such as by reason of insanity, will not be enforced by the courts.
(4) Mistake By All Parties – If all parties enter into a contract but the contract does not express what the parties agreed upon then any of the parties may avoid the contract.
(5) Unconscionability/Duress – If the contract was induced by force or may be so one-sided that a court could not in good conscience enforce it, then the victim of the duress or unconscionability could walk from the contract. Naturally what would constitute unconscionability can be very difficult to define in advance of a judge making that determination after a trial on the issue.
(6) Fraud – If the execution of a contract is obtained through fraud, deceit, or misrepresentation, the contract may be cancelled.
(7) Breach by the Other Party – Where the other party breaches the contract first, the non-breaching party may cancel the contract. This raises two separate issues which are too long to discuss in detail in this article. However, what if the other party merely claims they will not perform as agreed upon. This is called an anticipatory repudiation of the contract. That requires a separate article to discuss. The other is what if the other party breaches but it is just a minor breach – like the seller indicating the seller won’t leave the garage clicker on a $400,000.00 sale? That example is probably not a material breach which would not permit the buyer to cancel. But the buyer would have a claim for damages. If it is discovered the seller knew the foundation had structural cracks but covered them up and did not disclose them as required then that could be a material breach. With a material breach the buyer may walk from the contract. That is the issue of a minor breach versus a substantial breach of contract. As one can imagine it may be difficult in a given situation to know which type of breach it is.
As briefly mentioned above, if the buyer does decline to perform and none of the above defenses are available to the buyer, then the seller can sue the buyer for “specific performance” to obtain a court order requiring the buyer to proceed with the contract and pay the contracted for consideration. This remedy is rarely utilized but, is available.
The seller may demand the earnest money be defaulted to the seller. This remedy must be provided for in the contract. If the seller takes the earnest money as damages upon a breach by the buyer, then the seller has agreed to accept the earnest money deposit as its sole remedy and may not also sue for damages. In some situations the earnest money may be sufficient to cover the seller’s damages and in other situations it may be woefully inadequate.
The other remedy is for the seller to sue for damages which were incurred by reason of buyer’s refusal to perform. Thus, the seller can sue to recover those losses incurred as a consequence of the buyer’s breach or failure to perform the contract as agreed.
A caveat to real estate agents is that they should be extremely cautious about ever advising a buyer not to perform their contract. If an agent does so and the seller suffers damages, the seller may sue both the buyer and the buyer’s agent.
Yes, it may be painful in a given situation but once a contract has been finalized a buyer must go through with the contract or there will most likely be financial consequences. After reading this you may feel that this is elementary advice, but, I again say, Lamborghinis are very nice cars!