Contract Law Questions

Without going in to a lot of details, here is what I am looking for:

If in a real estate deal and you have a signed contract, and you get to about 3 weeks before the closing and you cancel can the seller go after the deposit money?  

Now here comes the tricky area:  the buyer shows a denial letter from the bank and his lawyer sends this to seller's lawyer with notice they are canceling the contract, and the seller's lawyer agrees to the cancelation, can you still go after buyer for deposit money or seller's out of pocket money?   I know this sounds like a simple no.  But what if you can prove he committed fraud and misrepresented his financial status?

Does seller have the funds to gather documentation of the fraud? How much is the seller out? Does the buyer have funds to attach if the suit is won?

the contract should have a contingency....it is contingent on bank approval...if that is in the contract, i would think the deposit would be returned.

you say there are lawyers involved, what does the lawyer say?

EricBurbank said:

Lawyer is a real estate lawyer who is a nice guy but is not a litigator.   Before this happened he said he has only seen two clients go after the deposit.  He said one spent $15k to get back $15k and the other one lost the case.  So he believed that this client couldn't win so he gave the ok to release the deposit. 

The contract did have an out if he couldn't obtain a mortgage from his bank.

The seller has funds to obtain the fraud documents but maybe not the funds to litigate.  If he knew he could win or have a good shot of winning he may be able to find the money.  

The seller is out moving expenses,  rent for a new house till they find one to buy. Buyer wanted less than a 60 day closing so seller had to find something fast because he waited for inspection report and other items to be completed before he did anything.   He wanted to make sure the deal was done. They negotiated a couple of items which annoyed the seller because the sellrr reduced the purchase price by about $10k with a verbal agreement that buyer would not go after petty stuff, or stuff the buyer preferred over what was there, such as replacing all the carpet because the buyer prefers hardwood floors.  But that is exactly what the buyer did.  Obviously the seller only agreed to a couple small items and refuse the flooring issues.  But seller was still out another $1500.

I have to go out now but will fill in the details of the fraud tomorrow. 

Maybe go through small claims to request up to $3k?  Then it's only a $35 filing fee risk.

EricBurbank said:

 

 Sell to a qualified buyer and move on. 

My attorney had told me it is a costly process to not return the deposit (no matter how much you are not at fault).  That being said, there are legal costs for the other party as well to try to get his deposit back.  So I felt the best course of action was just not send the deposit back and wait on them to take us to court.  After another 30 days they went ahead with the purchase (there was no contingency in this contract).   Clearly his attorney had told him it would be costly to get the deposit back and might not be worth the effort.  Had he sued we would have returned the deposit to avoid going forward with an expensive legal process.  My attorney was actually happy I forced the situation on to the other attorney.  

Bottom line is how much is at risk and which party is going to have to pay more.  

He was/is a qualified buyer.  That is the issue.
The seller's attorney already released the deposit.  He didnt know the buyer lied about his finances and committed an act of fraud.  I think the fraud would be lying to seller and on loan application.   

Buyer showed bank statements as proof of funds in the beginning totaling just about the price of the house.  Also showed a line of credit for $1.5m.  He flips houses.  Buyer was going to live their, he came by with wife and kids to look at the house.  Kids picked out bedrooms and wife asked if seller would sell dinning room set too.  But on loan application he put investment property and apparently didnt show the same bank accounts to the bank.

While it may have been a deceptive/fraudulent way to get out of the contract, winning the full deposit back seems unlikely. They probably have different business and personal accounts, and if their personal accounts were too low to get a loan, and that legally gets them out of the contract, it seems like an uphill battle to prove otherwise.

First, check the language of the Contract regarding the Buyer's obligation to make a good faith effort to obtain a mortgage loan.

Can you prove he didn't do so,

Second check the Contract language as to remedies for breach of contract. If it doesn't say that Buyer automatically forfeits deposit if he breaches then you have to prove actual damages. To do that you have to re-list the house for sale, sell it and then figure out your actual monetary losses.

Then you have to go through a lawsuit, which isn't much fun and there is no guaranty you will be successful.

Before you do anything other than reading the Contract you may have to "Make Time of the Essence". 

If you need a further explanation you are going to have to pay for my time.

At this point the seller may just take him to small claims court to get the money he spent moving and whatever else he can.

Stan, is this something he would file in Maplewood or in Newark at the county courthouse?  Are you completely retired or are you now practicing a little on the side? 

EricBurbank said:

At this point the seller may just take him to small claims court to get the money he spent moving and whatever else he can.

Stan, is this something he would file in Maplewood or in Newark at the county courthouse?  Are you completely retired or are you now practicing a little on the side? 

 I am retired only from Township position.

I am practicing law almost full-time.

You would file in Superior Court-Essex County at the Courthouse in Newark.

EricBurbank said:

At this point the seller may just take him to small claims court to get the money he spent moving and whatever else he can.

Stan, is this something he would file in Maplewood or in Newark at the county courthouse?  Are you completely retired or are you now practicing a little on the side? 

 Newark. It can be done by mail. Google N.J.small claims court.  It will ink you to the process and the forms.

Both parties will likely be invited to a pre-hearing conference where the arbitrator proposes that you split the difference. Accept that or go to hearing.

If you win, you pay the sheriff approximately $35.00 to collect the funds. You furnish the defendant with an affidavit where he lists his assets. If there is a bank account, the sheriff collects. If not, and there is property, you can file a lien  on the property.

In this case, there is a reasonable chance to collect since he had money to put down on the house and listed bank accounts.

I am not an attorney but these were my experience when I succeeded in collecting on a small claims judgement.

Fjj,

You make it sound easier than it really is.

And to be accurate.

You don't get "invited to a pre-hearing conference". On the trial date you get sent to mandatory arbitration. If you can't reach a settlement you go before a Judge for trial. If cases are backed up you may have to come back on another day.

Again, at trial the plaintiff will have to prove both "liability" and "damages". In the case described there was a "mortgage contingency clause, which allowed the Buyer to back out if he got rejected for the mortgage. So the Seller-plaintiff will have the burden of proving that the Buyer did not "make a good faith effort" to obtain a mortgage loan. Then he will have to prove actual loss, but that cannot really be measured until he finds another Buyer and completes the transaction. So, suppose the re market goes up and the Seller ends up selling for a much higher price than the previous Buyer was going to pay. It's possible.

Now even after one gets a judgment it is not that easy to collect. Collection of a Small Claims judgment is not by the Sheriff. It is by a Special Civil Part Officer who is sometimes called a Constable and is not a Court employee but a licensed independent contractor.

The "Affidavit" FJJ mentions is an "Information Subpoena". I have utilized them but sometimes the defendant simply fails to answer. The procedure then becomes more complicated.

Bottomline, what the plaintiff needs even more than a provable case is time and patience. 

Thank all of you.

Stanley I  received your message..  I may reach out to you this week.

Eric