Posted By Larry Tolchinsky on June 30, 2015
What happens when a seller defaults on a real estate contract?
It is true that in many residential real estate transactions, it is the buyer that has second thoughts about buying that home or condo and tries to find a way to back out of the deal. However, that’s not always the case; sellers often decide they don’t want to go ahead with selling their property, too.
So, in South Florida, what happens when the seller gets cold feet or the seller can’t perform what he or she contracted to do? The answer lies in the contract.
Does the Language of the Florida Residential Sales Contract Control?
Here in South Florida, most people who are selling a home, condominium, townhouse, or other residential real estate will use a “standard” residential purchase and sale contract form, one of several that are recognized in Florida for residential real estate transactions.
These residential purchase and sale contract forms, once signed by the parties, becomes the document that governs their transaction.
The contract, for instance, outlines what happens in the event of default by either the seller or the buyer (which is one more reason why it is so important to have a Florida real estate lawyer review your documents for you when you are buying or selling a house or condo here).
There is not just one sale contract form used here and throughout Florida; there several “standard” Florida real estate contracts which buyers and sellers can use. However, in the tri-county area of Broward County, Miami-Dade County, and Palm Beach County, most sellers and buyers execute one form which was drafted, finalized, and approved in a joint effort between the State Bar of Florida and the Florida Realtors (TM) association.
Is a “Default” Defined in the Sales Contract?
How and when a seller defaults on a residential real estate contract is spelled out in the contract itself. Pursuant to the language of the Florida Bar – Florida Realtors (TM) form ASIS-3 agreement, default is defined in paragraph fifteen (15) for both the buyer and the seller.
Reading that paragraph you will find the following description of when the Seller is consider to legally default on the deal:
(b) SELLER DEFAULT: If for any reason other than failure of Seller to make Seller’s title marketable after reasonable diligent effort, Seller fails, neglects or refuses to perform Seller’s obligations under this Contract, Buyer may elect to receive return of Buyer’s Deposit without thereby waiving any action for damages resulting from Seller’s breach, and, pursuant to Paragraph 16, may seek to recover such damages or seek specific performance. This Paragraph 15 shall survive Closing or termination of this Contract.
What does that mean? The Buyer can ask for their deposit to be returned to them and either sue the Seller for damages or seek to force the Seller to sell the property to the Buyer.
If the Seller fails to “make title marketable after reasonable diligent effort,” that is NOT considered a default. Sales contracts have time limitations within them; there is a deadline for closing a transaction. If the Seller cannot get clear title to the home or condo within that time period, despite his or her reasonable efforts to do so, then the Seller will not be considered in default under the language of this form contract paragraph (in this case, the buyer can either cancel the contact and receive his or her deposit or proceed with the transaction and accept the title as is).
Examples of a Seller default include:
- Not allowing access to the property for inspections;
- Not providing condominium documents to the buyer before the closing date; and
- Not providing or disclosing material facts within the Seller’s knowledge that affect the value of the Property and are not readily observable to the Buyer.
How is a Breach of a Sales Contract Settled?
In instances where the Seller is in default as defined by the Default provision of the contract, what can the buyer do to settle the dispute? Again, the language of the contract itself will control what happens. In the form agreement referenced above, the parties agree to take their controversy to an alternative dispute resolution forum (aka mediation) before either party can file a lawsuit. The form contract also handles who pays what in fees and expenses in a mediation and any subsequent litigation.
According to paragraph 16:
DISPUTE RESOLUTION: Unresolved controversies, claims and other matters in question between Buyer and Seller arising out of, or relating to, this Contract or its breach, enforcement or interpretation (“Dispute”) will be settled as follows:
(a) Buyer and Seller will have 10 days after the date conflicting demands for the Deposit are made to attempt to resolve such Dispute, failing which, Buyer and Seller shall submit such Dispute to mediation under Paragraph 16(b).
(b) Buyer and Seller shall attempt to settle Disputes in an amicable manner through mediation pursuant to Florida Rules for Certified and Court-Appointed Mediators and Chapter 44, F.S., as amended (the “Mediation Rules”). The mediator must be certified or must have experience in the real estate industry. Injunctive relief may be sought without first complying with this Paragraph 16(b). Disputes not settled pursuant to this Paragraph 16 may be resolved by instituting action in the appropriate court having jurisdiction of the matter. This Paragraph 16 shall survive Closing or termination of this Contract.
ATTORNEY’S FEES; COSTS: The parties will split equally any mediation fee incurred in any mediation permitted by this Contract, and each party will pay their own costs, expenses and fees, including attorney’s fees, incurred in conducting the mediation. In any litigation permitted by this Contract, the prevailing party shall be entitled to recover from the non-prevailing party costs and fees, including reasonable attorney’s fees, incurred in conducting the litigation. This Paragraph 17 shall survive Closing or termination of this Contract.
Can a Real Estate Lawyer Add Value and Help?
If you have signed an agreement to buy a home here in Florida, or if you’ve signed a contract to sell your residential real estate, then you should be familiar with and know your rights and obligations under your agreement. Often times, clients will want to know how they can walk away from a deal without repercussions, including being be forced to pay damages and attorney fees. Usually, these situations can be resolved with the help of an experienced Florida real estate lawyer, through settlement negotiations, with the goal of avoiding a prolonged and expensive court battle.
Do you have questions or comments? Then please feel free to Chat with Larry in the comments below, at email@example.com, or (954) 458-8655. If you have a specific or personal situation, please call or email Larry because he can’t answer specific fact questions in general comments.