Real Estate Disputes: What to Look Out For
Legal disputes can be an unwelcome hiccup in the real estate transaction process, but what exactly qualifies as a dispute? Real estate disputes are a disagreement between the seller and the buyer during (and after) the transaction process. While the types of disputes can vary greatly, they typically involve issues such as performance of the contract within the dates required by contract, breach of the purchase contract, property line issues, and failure to disclose material facts about the property by the seller. Since the different types of disputes seem endless, it is important to be aware of some of the most common ones so that you can protect yourself as a buyer or seller. Of course, in the event that your real estate transaction does not go as planned, it is essential to seek counsel from an experienced real estate attorney who can guide you through the dispute process.
What to Expect with Breach of Contract
Breach of contract is when either party (seller or buyer) fails to abide by their contractual obligation(s), which in real estate, can result in the termination of the transaction, forfeiture of the deposit, litigation, or all three!
In Massachusetts, most real estate contracts have a “liquidated damages” clause that outlines the procedure followed in the case of a default by the buyer. In essence, this clause states that if the buyer “defaults,” meaning they cannot, or will not, perform under the contract for no legally permissible reason, then the total deposit(s) that the buyer has made at that time becomes the property of the seller. If the contract has been breached for no legally permissible reason, the seller’s only remedy is to retain the deposit(s). Additionally, in this scenario, the seller typically cannot take the buyer to court and seek further damages. Even if the buyer changes their mind the night before the date on which the transaction was to take place, the seller is only entitled to the deposit (assuming the contract has a liquidated damages provision). Keep in mind that the buyer does not always agree to release the deposit so readily, and parties can end up in litigation over whether there was actually a breach of the contract by the buyer, thus triggering the liquidated damages provision of the contract. In fact, many times the parties will arrive at some settlement in which a portion of the deposit is returned to the buyer and a portion is released to the seller.
Because the seller does not make deposits in the transaction process, the buyer has no such liquidated damages protection if the seller breaches the contract (for no legally permissible reason). In this instance, the buyer is allowed to take the seller to court and seek financial damages, and in some cases seek to require the seller to “perform” under the contract (sell the property to the buyer). Because a breach perpetrated by the seller typically does not have a stated remedy, the legal process can be more time-consuming and because of that, a settlement is often reached between the parties before going to litigation.
Timing in the Purchase Process
Regardless of which party breaches the contract, the stage of the transaction in which the breach occurs is an important factor that may determine the subsequent impact. We examine the various stages of real estate transactions and the most common disputes for each stage below.
After acceptance of an offer to purchase but before the purchase and sale agreement is signed
If there is a dispute or alleged breach of contract following the acceptance of an offer, but before the purchase and sale agreement is signed, this typically results in a more amicable dispute process because it occurs at such an early stage in the process. Since the initial deposit is usually between $1,000-$5,000, the seller will often opt to return the deposit and find a new buyer instead of fighting with the buyer over a relatively small amount of money. It is rare that disputes at this stage are not resolvable. Common disputes at this stage of the process include:
- Disagreements regarding the results of the home inspection and how to account for them and resolve the inspection issues.
- Disagreements regarding the condominium documents. These issues are harder to resolve because the seller is only one owner within a group of owners and doesn’t have the power to adjust items within the association budget or rules.
- Disagreements resulting from the drafting and negotiating of the purchase and sale agreement.
It is vital to remember that an offer is a binding contract. A purchase and sale agreement is typically (and customarily) signed after the offer, but it is not required for the deal to be valid and binding. If the seller tries to get out of the deal simply because they found a better offer, the buyer can take them to court based on the existence of a signed offer to purchase.
After the purchase and sale agreement is signed but before transfer of ownership (commonly called the “closing”)
Real estate disputes at this stage of the transaction can be difficult to maneuver, but can still be resolved with the help of an experienced attorney. The most common disputes at this stage of the process are in relation to the title (ownership and lien history), repairs to be done by the seller before transfer of the title, and the status and timing of the buyer’s financing approval. We recommend completing a thorough title search to identify any potential title issues, and to be clear on the timelines for repairs and financing to avoid a formal dispute.
After transfer of ownership
A real estate dispute following the transfer of ownership can be arduous to navigate due to the fact that the sale has already occurred and the money has changed hands. Following transfer of ownership, unless the contract otherwise specifies, all of the contractual items of the purchase and sale are no longer enforceable (they do not “survive”), unless fraud or misrepresentations can be proven. An example of something constituting this would be if there was representation that there had never been water in the basement but water is found a month later, and it can be proven the water existed and was known about by the seller. To successfully navigate this dispute, the buyer needs to prove that the seller knowingly misrepresented something in the purchase and sale agreement. The representation is only actionable in a lawsuit if the buyer can prove that the seller knew about something and represented otherwise, which can be difficult to do.
Real estate disputes for new construction properties can result from issues with the quality of work, differences of opinion of a seller’s adherence to the plans and specifications, or delays on the project’s completion. Most new construction projects include one-year limited seller’s warranty on certain items related to the construction. Additionally, Massachusetts law identifies certain warranties regardless of the purchase contract and terms of the written warranty. These concepts protect the buyer more than a standard real estate transaction, but it is important to understand what they include (or do not include) before entering into a contract for a new construction property.
Leverage Expert Guidance
The breadth and complexity of real estate disputes is wide, but having an experienced real estate attorney on your side can make all the difference in your transaction. Navigating a dispute requires the tact of an attorney well-versed in these matters. If you are considering buying or selling, or have encountered a dispute in your transaction, reach out to real estate attorney Matthew Roberts of Ligris + Associates PC.
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