When an individual or an entity enters into an agreement to purchase or sell a property, they have a contract that is enforceable in the court system where the property is located - not usually where the parties to the transaction are located.
The two parties to the agreement, the buyer and the seller, have agreed in writing to the terms and conditions of the contract.
The buyer tenders the contract to the seller and gives the seller "good and valuable consideration" to make the contract valid - if and when the seller signs.
This consideration does not have to be money.
In fact, many courts have ruled that the contract itself is valuable consideration because the buyer is purchasing the property.
Some investors will come in after a seller has signed with another investor and explain that the first investor's contract is not valid because he didn't give a deposit to the seller.
This is inaccurate and is considered fraud in many states because it is a fraudulent inducement to sell to another party - even if the seller is aware that he is breaking the original contract.
If this happens, the seller has broken or "breached" the terms and conditions of the original contract and is subject to the buyer suing him for "specific performance" under the terms of a valid contract.
But what if the buyer changes his mind and doesn't come to the closing? The seller can also sue for specific performance, but usually real estate contracts limit the liability of the buyer to the amount of his escrow deposit.
The usual motive for a seller to decide not to sell is "seller's remorse".
This is often because the seller changed his mind after any number of reasons including but not limited to: getting a higher price, deciding he didn't get a high enough offer, no place to move to, divorce resolution and most often, he discovers the profit the investor will be making on reselling his property.
Once the seller has notified the buyer he won't come to closing, the buyer has two choices.
First, he can let the seller off the hook and just get his deposit back, or secondly, he can sue the seller in court.
The correct choice depends on a number of factors including the cost to sue the seller and the amount of profit expectation in the deal.
For example, if the profit that the investor expected to make was $5,000, he has a hard decision because his attorney's fees could exceed that.
We have successfully completed four of these law suits this year with the most expensive one costing $11,000 in attorney's fees.
In this case the seller died from unrelated health reasons but we moved the case to the probate of his estate.
The personal representative of his estate agreed to honor the decedent's contract and pay $8,000 of our attorney's fees.
The sale of this property resulted in a substantial profit so it was worth the pursuit of our claim.
Legal fees will vary greatly across the country, so check before you start a case because you may win and lose money on the deal.
If you enter into a real estate contract as a buyer, make sure you read the contract terms to your limit of liability.
In one lender's REO addendum I recently saw, the limit of liability listed was the amount of the escrow deposit and $5,000 as additional punitive damages if the buyer didn't close.
This was the first and only time I saw it in thousands of contracts, but always check.
If you don't feel like reading the contracts you are signing, have an attorney do it for you - it could save you a ton of money and aggravation in the future.