What to do if my home purchase cannot be closed?

October 11, 2012

When a home buyer enters into an Agreement of purchase and sale, the closing is expected in the near future. Yet not every purchase transaction will be closed as planned, which will inevitably lead to frustration and distress on the part of every party of the transaction. What a home buyer can do if the deal cannot close on time?

To answer the question one must know the reason behind the delay. Sometimes the delay is out of control of the vendor, or even caused by the purchaser. For example, the purchaser found out some issues of the home, and then made an acquisition or objection with respect to the transaction. In these circumstances, the purchaser had better take time to find out the “truth” related to the house and the deal, so as to avoid a “sham” or purchase which they would later regret.

Sometimes, however, the problem lies with the vendor. Oftentimes I see vendors who think they did not make the best deal will use all excuses to avoid closing. If this is the case, the purchaser may have a number of remedies.

Repudiation and damages for breach of contract

If the vendor acts in such a manner that the purchaser may conclude the vendor will no longer abide by the Agreement of Purchase and Sale (“repudiation” in legal term), the purchaser should clearly state their position with respect to the repudiation. The purchaser may take the position that they are relieved of further obligations under the contact, and then initiate a civil lawsuit for breach of contract. In this case, the innocent purchaser may demand the return of the deposit, and then claim damages they suffered.

In determining damages, the principle is to restore the innocent party to the position had the repudiation not occurred. The measure of damages for breach of an agreement of purchase and sale usually is the difference between the contract price and the market price of the land at the time damages are assessed. The time of assessing such damages is usually the date of trial. Thus, if A offered $500,000 to buy a house, but the contract was repudiated by the vendor, and the market price of a house of similar type and location becomes $800,000 at the time of trial, A will be entitled to $300,000. Note, however, if the failure to close is caused by a defect in title of the house, many agreements of purchase and sale effectively limit the purchaser’s rights to a refund of deposit only.

Specific performance

On the other hand, some purchaser may still want the sale be closed even if the closing is delayed by the vendor. In this case, the purchaser may demand “specific performance” as per the agreement of purchase and sale (in this case to close the transaction).

Specific performance is a remedy based on equitable consideration whereby the court orders a party to a contract to fulfill its contractual obligations. Because of this, the court will have discretion in deciding whether or not to order this remedy, considering among other things whether such a remedy will cause hardship on the defendant, whether the contract is fair, and whether the price (consideration in legal term) is adequate.

Because of the potential disputes in carrying out the terms of the contract and difficulty for the court to supervise the performance ordered, the party asking for such a remedy will need to satisfy the court that the land in questions possesses a particular value and the purchaser would not be adequately compensated by award of damages.

Also, the purchaser asking for specific performance must make its position clear and consistent. If a purchaser demands the return of the deposit and closing at the same time, then an application for specific performance will not be granted. The purchaser must show that on the date set for closing, they were ready, willing and able to close, that is, fulfill their obligations under the agreement of purchase and sale. In almost all cases, it is advisable that the purchaser tenders on the defaulting vendor.

In drafting the statement of claim, however, the purchaser may sue for specific performance, and damages for breach of contract as alternative. If the claim for specific performance is not pursued to judgment, the action may proceed as an action for damages.

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