QI signed a contract to buy a single-family house, and settlement is scheduled for this week. The seller's broker has just advised me that the seller does not plan to sell us the house. No reasons have been given, but we suspect that the seller now believes that the contract sales price was too low. What should we do?
AThere is a remedy in the law called "specific performance." I recommend that you seriously consider filing such a lawsuit as soon as possible.
Specific performance is called an "equitable remedy." This means that a judge has to assess the situation and weigh the cases of both the buyer and the seller. Based on the specific facts, the judge can order the seller to convey the property to the buyer.
In a 1980 District of Columbia Court of Appeals case involving the singer Roberta Flack, that court stated: "Specific performance of a contract is ordered when the legal remedy, usually money damages, is deemed to be either inadequate or impracticable. When land is the subject matter of the agreement, the legal remedy is assumed to be inadequate, since each parcel of land is unique; thus, equitable jurisdiction in this case is firmly established."
In some states, the mere filing of such a lawsuit will put a cloud on the title to the property, thereby preventing the property owner from selling the property to a third party. In some states, however, you (or your lawyer) have to file a document called a "lis pendens," and have that recorded among the land records where the property is located.
To be successful in such a lawsuit, the plaintiff (in our case, the buyer) must prove that he is "ready, willing and able" to go to settlement. In most cases, that means that the buyer has obtained the financing to purchase the property and in fact has shown up at the settlement attorney's office prepared to take title.
But what if the seller has thwarted the ability of the buyer to go to closing? A recent D.C. case has given us considerable guidance. In the case, Independence Management Co. v. Anderson & Summers LLC, a contract was entered into between buyer and seller for a piece of real estate. There were tenants in the property. Under D.C. law, those tenants have rights to purchase the property and those rights take precedence over any third-party contract.
When the buyer learned that the tenants were interested in buying, too, it suspended its efforts to obtain financing. However, when the tenants ultimately opted not to purchase, the seller demanded that the purchaser go to closing immediately. When the purchaser did not appear at the settlement table, the seller declared the purchaser in default.
The purchaser sued for specific performance, and won in the trial court. On appeal, the D.C. Court of Appeals affirmed the lower court decision. According to the court: "It is true that [purchaser] presented evidence only that it had obtained proposed financing commitment letters. [Purchaser] does not assert that it actually obtained financing enabling it to settle . . . This is hardly astonishing. Under the circumstances, . . . if would have been futile and wasteful for [purchaser] to obtain financing for a closing in which the seller was not going to participate."
The court concluded: "The law does not require the doing of a futile act." The case was decided on May 12.
This case makes it clear that if the purchaser -- through no fault of its own -- is unable to go to closing, this will not prohibit that purchaser from obtaining a court order for specific performance.
You have suggested that the reason that your seller is not willing to go to settlement is because the purchase price may have been too low. The courts have addressed that issue.
In the Flack case, the court stated, "The offeror is master of his offer, and . . . Flack must have considered real estate values when she stated her asking price."
This concept also has been upheld by the Supreme Court, which stated: "Unless the transaction is unconscionable, it is not the eligible function of the court to liberate those who apprehend that they have engaged in a bad bargain."
Thus, you should seriously consider filing that suit for specific performance against your seller. But before you file, there are some issues you should consider.
* Determine whether your lender will preserve your loan. Will interest rates go up by the time the lawsuit is resolved?
* Review your contract carefully with your lawyer. Does it provide that in any such litigation, the court can award legal fees to the prevailing party?
* Remember that litigation can be time consuming if the seller does not cave in when served with the lawsuit. While it appears that you may have a good case, litigation is always a gamble.
Benny L. Kass is a Washington lawyer. For a free copy of the booklet "A Guide to Settlement on Your New Home," send a self-addressed stamped envelope to Benny L. Kass, Suite 1100, 1050 17th St. NW, Washington, D.C. 20036. Readers may also send questions to him at that address.