Q. My husband and I signed a contract to buy a house and we are supposed to close in the middle of August. This was a cash deal. The seller agreed to fix a couple of things our inspector found at the inspection.
We now have been presented an opportunity in another state which we are seriously considering. We put down a $5,000 deposit which I understand is being held by the listing agent. If we decide to take this offer and not buy this house, what are our risks? Will we lose our $5,000? Or worse?
A. You indicate this is a cash deal so there is no financing contingency. You further indicate you have resolved any home inspection issues so it would appear that this contingency is no longer applicable. Presuming the contract is not contingent on any other occurrence, such as the sale of your present home, you would appear to be legally bound to perform under the contract.
So, what happens if you simply decide not to perform. Depending on the language of the contract, there are a few possibilities. One, you could lose your deposit. Two, the seller lets you out of the deal and returns your deposit (not likely). Or three, and this is the scary one, seller sues you for their actual damages.
What are actual damages? Well, in this case, actual damages are the difference between what the seller would have realized had you performed and what they actually realize. For example, let's say seller sold to you for $200,000. You default and seller puts the property back on the market but can now only get $180,000. This results in $20,000 of actual damages. But wait, that's not all. Seller incurred some additional real estate taxes while waiting for the second deal to close. And seller made some mortgage payments and insurance payments that they would not have made had you performed per the terms of your contract. These are all actual damages incurred by seller.
If I haven't yet talked you out of defaulting on this contract, this might do the trick. Most form contracts contain a provision that if one of the parties to the contract files a lawsuit to enforce its terms, the non-prevailing party shall pay the prevailing party's attorneys fees.
So, let's review. Under my example, presuming the seller sues you and prevails, you could be liable for $20,000 plus the mortgage payments, real estate taxes and insurance payments made by seller between the time you were scheduled to close and the time seller eventually closed with their new buyer. Add to that your attorney's fees and the attorney's fees incurred by seller. Throw in association payments if this is a condominium or townhouse.
Of course, if you are serious about attempting to terminate this contract, speak to a real estate attorney who can review the contract and possibly provide you with some options. Presuming no legal exit exists, the next step would be to contact the seller or his or her attorney, explain the situation and negotiate a buyout of the contract. It may sting, but this will be far less painful than learning six months from now that you are being sued back in your home state.
• Send your questions to Attorney Tom Resnick, 345 N. Quentin Road, Palatine, IL 60067, by email to firstname.lastname@example.org or call (847) 359-8983.