QWe signed a contract to buy a "to be built" home in Prince George's County. Seven months later, we received a letter from the builder's attorney, stating that the builder "has no legal right at this time to purchase any of the lots at this subdivision."
We believe the contract was canceled because the builder knew that he could sell the house at a much higher price in the then-hot market. Because of these misrepresentations -- and because interest rates are now higher than when we signed the contract -- we are unable to afford a similar home. Additionally, we have to forfeit a moving allowance valued at about $5,000 from the military, which was our retirement benefit after 20 years of service in the Marine Corps.
We complained to our county councilman, and as a result of our testimony, the council unanimously passed a law that may assist future consumers. However, we still need help.
Do we even have a basis for a suit. Can we sue for specific performance?
AFirst, let's look at the new law that the council enacted, which took effect Aug. 8. All real estate contracts for property in Prince George's County where the seller does not hold record title at the time the contract is signed must have a disclosure notice. In big bold letters, the seller must state:
"PLEASE TAKE NOTICE that the seller of the property in this contract does not presently hold title to the property, in the land records of Prince George's County.
"IF THE SELLER of the property does not presently hold title, this contract may be rescinded by the purchaser, made void and of no effect.
"THE SELLER IS REQUIRED to inform the purchaser at the time the contract is signed, that the seller does not presently hold title to the property."
Violation is a misdemeanor. While this is a good first step, it clearly does not give you any guidance or any relief.
You asked if you can sue for specific performance. Unless the seller actually owns the property now, such a lawsuit is not possible. Specific performance asks the court to order the seller to convey the property to the buyer.
However, you still have recourse. You signed a contract that did not disclose that the seller did not own the property. The seller can be sued for breach of contract, since he is unable to perform under that contract.
Your damages, at the least, would be the loss of your moving allowance, any additional interest that you will have to pay now for a mortgage loan, and possibly the difference in the value between the house you were going to buy and one which you will now have to purchase.
Alternatively, since you do not want to spend a lot on legal fees, you might want to consider filing a suit in the small claims court (called the District Court in Prince George's County), where the jurisdictional limit on claims is $5,000. If you decide to go this route, you may recoup some of your losses.
Finally, you asked if it is legal to sell something that you do not have. The simple answer is yes. Let's look at this example. Mr. A. is interested in buying lot X and plans to build a house there. He signs a contract to purchase the lot. Although Mr. A. does not have legal title to the lot, he has what is called "equitable title" to the property. This means that he has the right to sign a sales contract to sell the lot to a third party, because he knows that he will be able to get title to the property before he has to sell it to that other person.
This is often referred to as a "flip." Some flips are bad, because the seller has taken advantage of the original property owner. The seller persuades the owner to sell at a low price, and then resells the property and makes a nice profit.
But Mr. A. may have signed a contract to buy raw land at the full market price, knowing that once he builds a house on the lot, he will be able to sell it and make some money in the process. There is nothing illegal about this.
However, Mr. A. should have fully disclosed to the third party that at the time the contract was signed, he did not, in fact, have full title ownership to the property. Now, at least in Prince George's County -- as a result of your experience and your willingness to go public -- such disclosures are legally required.
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.