What Happens When a Seller Makes A Mistake Or Commits Fraud?

Last Update: 3/25/20

Common issues buyers have with sellers of Florida residential real estate.

What happens in a Florida residential real estate transaction when the seller doesn’t do his or her part and close the deal? Or, the seller makes a material misrepresentation about the property and the buyer purchases the property relying on that bad information?  In Florida, both contract law (see the residential sales contract) and real estate law provide remedies for the buyer.

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Buyers’ Remedies When the Seller Defaults on a Residential Real Estate Contract

Even though the Seller may have defaulted on the Contract (intentionally or not), often times the buyer decides he or she really wants the property or he or she wants to be compensated for their time and expense in trying to purchase the property.  One option a buyer may have is to force the Seller to close the deal by suing the Seller for specific performance. Alternatively, the buyer can simply opt to sue the seller for his or her damages (we are assuming these options are available under the contract – some lawyers may limit the buyer’s remedies in the event of a default by the Seller).

Specific Performance Ordered by the Court

In a lawsuit seeking specific performance, the Buyer seeks a judgment from the court that orders the seller to complete the transaction and transfer title to the buyer. Here, the buyer will likely need to show the judge evidence that he or she has tendered the seller the purchase price; or alternatively, that he or she stands ready, willing, and able to do so once the judge orders the closing to happen.

Suing the Seller for Money Damages

Sometimes, the buyer may decide that the best course of action for him or her to take is to walk away from the property and sue the seller for breach of the contract instead. Here, the buyer seeks money damages from the seller that will include (1) refunding any money that the buyer paid to the seller as part of the deal (earnest money deposits) as well as (2) any financial harm or expense incurred by the buyer as a result of the seller’s breach and failure to close (inspection costs, survey expenses, title search expenses, appraisals, fees paid to an association etc.). See, In re Ecoventure Wiggins Pass, Ltd., 419 B.R. 875 (Bankr. M.D. Fla. 2009) (applying Florida law).

What if There Was a Mistake?

Sometimes, mistakes are made. For instance, a buyer may enter into a contract with the seller only to find that there’s a problem. One such mistake is where the buyer saw a different lot of land than the one that is being sold by the seller (the legal description in the contract doesn’t match the one in the deed).

This is called a “mutual mistake,” and it happens more often than many people think. See, Peace River Phosphate Mining Co. v. Thomas A. Green, Inc., 102 Fla. 370, 135 So. 828 (1931).

Sometimes, real estate deals are done without physical inspection of the property or its improvements. If the real estate is sold to the buyer based entirely on a legal description, then the seller may not be held to account to the buyer who made a mistake about which lot he or she was buying in a new subdivision.

However, if the seller takes the step of pointing out to the buyer the location of the home or lot being sold (for example, telling the buyer, ”it’s right across from the pool”), then the seller may be held liable to the buyer for any mistake that is made. See, Langley v. Irons Land & Development Co., 94 Fla. 1010, 114 So. 769 (1927).

As the Florida Supreme Court explained long ago in the Langley decision: “… misrepresentation of material facts, although innocently made, if acted on by the other party to his detriment, will constitute a sufficient ground for rescission and cancellation in equity.” Langley, 114 So. at 771.

What About Fraud by the Seller?

There are times when sellers don’t act fairly. If the buyer believes that he or she is a victim of fraud by the seller, then the buyer has a few remedies it can choose among: seek to “rescind” the deal and get his or her money back, or sue the seller for fraud and ask for damages.

If the buyer decides to sue for damages, the buyer keeps the property and sues the seller only for the financial damages that the buyer has sustained due to the fraud and intentional misrepresentations made by the seller.

If the buyer instead decides to “rescind” the transaction, the buyer asks the court to have the seller return of all of the money that he or she has paid to the seller and all of the expenses incurred in purchasing the property (this, of course, assumes the seller can be found and he or she still has the money). See, Boca Palm Investments, Inc. v. Jerdon Inc., 568 So. 2d 505 (Fla. 4th DCA 1990).

Caveat: the buyer will likely need to be able to prove that he or she did not know of the claimed misrepresentations and fraud on the part of the seller until after closing took place. If the buyer knew or should have known of the misrepresentations or fraud before the closing and choose to close the deal anyway, then the doctrine of “merger” will likely prevent the suit from surviving a motion for summary judgment.  Fraser v. Schoenfeld, 364 So. 2d 533 (Fla. 3d DCA 1978).

What is a Fraudulent Misrepresentation?

In the world of real estate sales, every day lots of representations are made to buyers. When do these representations go over the line? A fraudulent misrepresentation must be a factual claim, not a statement of opinion, belief, or estimate by the seller. Greenberg v. Berger, 46 So. 2d 609 (Fla. 1950).

Sellers who say things like “I think it’s the best ocean view in South Florida!” aren’t committing fraud. That is an opinion. The buyer still has the legal duty of checking out that ocean view and deciding for himself if the condo is worth the price.

However, a seller who tells a prospective condo buyer that he or she received $36,000/year in condo rental fees during the past year is providing a specific statement of fact, and if the buyer goes through with the closing, relying on that statement as an accurate fact of past rental income, and the information is materially untrue, then the buyer has a basis for a fraud claim against the seller.

See: When Your New Home Isn’t What You Expected: Misrepresentation by a Real Estate Agent

What Should You Do?

If you have problems with your seller in a pending sales agreement to sell residential real estate here in Florida, or if you have discovered things aren’t as you understood them to be (as told by the seller or by his or her agent) before closing, then you have some decisions to make.

Do you want to walk away from the property and just get your money back? Do you want to force the sale of the home or condo? Each situation is different, and you have to make your decision based upon what is best for you economically and under Florida law.

A good piece of advice if you are involved in a real estate transaction where the seller is in default or where a seller has made untrue statements about the property you purchased, is to speak with an experienced Florida real estate lawyer to learn about your rights. Most real estate lawyers, like Larry Tolchinsky, offer a free initial consultation (over the phone or in person, whichever you prefer) to answer your questions.

Related:

• What Does The Contract Say When a Seller Defaults on a Residential Sales Contract in Florida?
• Misrepresentation by a Real Estate Professional: Claims for Negligent or Unintentional Misrepresentation