Buyer who backs out can lose the deposit


March 04, 2001

Dear Mr. Azrael,

I entered into a contract to purchase a home for my mother. At the time, she lived in New York state and had not seen the house. My real estate agent advised against making the contract contingent on my mother's approving the home.

I gave a $5,000 deposit on the contract. Almost immediately after I signed the contract, my mother was hospitalized. About six weeks later, she was transported to Maryland, and my real estate agent arranged for my mom to see the house. After touring the home, my mom said, "I don't like the house."

What else could I do?

I advised the real estate agent that I wasn't going to buy the house. I hired an attorney who generated a letter offering half of the deposit ($2,500) as a settlement. The seller hasn't responded and the "For Sale" sign remains on the property.

I bought another house for my mom. Her medical condition has worsened because of all of this. She's been hospitalized twice.

After two months, the first house still has not been resold. What recourse do I have to put this matter to rest?

William Heidel Bel Air

Dear Mr. Heidel,

It's too bad your mother didn't like the house. You now find yourself in the unenviable position of having breached your contract to purchase real estate.

When a buyer fails to settle for real estate in breach of his contract, the seller generally has two choices.

The seller can forfeit the deposit, in which case the buyer loses the deposit but has no further liability. Or the seller can elect to put the property back on the market, use reasonable efforts to resell it, and after the house has been resold, sue the defaulting buyer for all consequential damages.

In your case, the seller has not elected to forfeit the $5,000 deposit but instead appears to be trying to resell the house.

Once a resale occurs, the seller will know if damages have been sustained.

The seller's damages may include the difference between your contract price and the ultimate selling price, as well as extra costs involved in the resale and expense incurred to carry the property from the date you were supposed to settle until the actual settlement date. The seller may also be allowed interest for the loss of use of the sale proceeds. The actual amount of damages won't be known until the house is resold and settlement occurs.

Whether you have defenses to the seller's claims depends on the language of your contract. Since your attorney wrote a letter offering half of the deposit as settlement, perhaps there may be a legal basis to avoid liability or limit your exposure.

I have seen similar situations where the seller resells the property for a higher price, and thus, sustains little or no monetary damage. If that occurs in your case, you may be entitled to a refund of all or part of your $5,000 deposit.

I've seen other situations where the seller feels sorry for the buyer and agrees to let the buyer out of an enforceable contract. You can't count on such a favorable result.

My advice is to find out if the property has been relisted for sale, and if so, for how much. Keep your attorney advised about what occurs with the property, and let your attorney handle the matter in a way that will minimize your loss.

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