Posted by Tom-FL on December 05, 2004 at 17:08:48:
$50 mil. It was a REALLY nice house.
When is Specific Performance no longer feasible? - Posted by GaryB
Posted by GaryB on December 04, 2004 at 14:22:22:
When you are in contract with a seller, they are obligated to sell to you. If they fail to sell to you they have breached the purchase contract and may be liable to you for breach of contract. Very importantly you may sue them, in such a case, for specific performance. Thus getting a Court Order forcing them to sell the property to you.
But what happens if the seller has already sold the property to another buyer who (let’s say) is even already currently residing in the property? I cannot imagine that a Court would reverse the sale that was in breach of your purchase contract, and instead order specific performance (that is, force the seller to sell the house to you). Obviously the house has already been sold to a buyer who is currently residing in the house,(albeit in breach of your contract). Or could the Court reverse that sale and order specific performance?
I imgagine that in such a case, you would only be able to sue seller for the difference between the market value of the house and your contract price, and any other relevant expenditures you may have incurred in reliance upon the purchase contract. Is this correct?
Any real life experience regarding this? Any comments, thoughts, opinions? Thanks.
Re: Can this happen in an l/o situation? - Posted by james CA
Posted by james CA on December 05, 2004 at 24:00:27:
I am just curious can this be happen in l/o situation where the owner sold the prop. to another buyer and you didn’t find out until months later? But I guess a buyer must have file some documents at the county therefore the title is clouded and the seller cannot have a clean title to sell.
Here is the answer… - Posted by Ben (NJ)
Posted by Ben (NJ) on December 04, 2004 at 19:11:27:
Before you even file your suit, your attorney will immediately file temporary restraints against the seller barring him from selling, encumbering or otherwise hypothecating (using the property as collateral)the property. This is a court order which if the seller ignores it, he will be found in contempt of court and severely penalized. This type of emergent, injunctive relief is very common with real estate disputes. The status quo must be maintained until the dispute can be resolved. Furthermore, once the suit is under way a Lis Pendens should be filed. No title company will close without investigating why there is a lis pendens on the property.
Ben NJ (Esq)
Re: When is Specific Performance no longer - Posted by Corine
Posted by Corine on December 04, 2004 at 16:25:11:
Come on, someone’s gotta know the answer to this
questiopn. am waiting for the answer too.
But … - Posted by Tom-FL
Posted by Tom-FL on December 04, 2004 at 19:37:09:
He said it’s already closed.
My point is… - Posted by Ben (NJ)
Posted by Ben (NJ) on December 04, 2004 at 19:54:15:
that it would (should) never even get that far. The buyer and his attorney would have had to drop the ball pretty badly in order to even find themelves in this predicament. If that is the case though the only argument is that the new buyer is not a “bona-fide” purchaser, ie a sham buyer who purchased the property with the goal of frustrating the other buyer’s goal of specific performance. If the judge buys that then he would unravel the whole deal. More likely though, he would blame the buyer for not acting in a timely manner to enjoin the sale. As an alternative I suppose there could be liquidated damages but I think it’s rare. At that point most people would just cut their losses and move on.
The Question, Reformulated - Posted by GaryB
Posted by GaryB on December 04, 2004 at 22:26:09:
Hi Ben:
Thanks for our response. I understand that if the new buyer has not closed on the house, I (the original buyer) can apply for a temporary restraining order to maintain the status quo until a Court decides the rights of the parties. If that were the case I would expect the court to rule in my favor especially since the new buyer’s purchase has not closed.
But as Tom pointed out, what happens in a case where the new buyer has already closed on the house and has been merrily living in the house for (let’s say) the past 6 months ?
This scenario is not that far fetched. A buyer may choose to enter into an “Extended Purchase Contract” with a seller. Quite simply (as am sure you know) this is a regular purchase contract with a closing date that is a wee bit more that the norm. For example Buyer and Seller sign a contract in January with a closing date scheduled for sometime in December. What if Seller gets a significanly higher offer from another buyer (Buyer2) and decides to sell the property to Buyer2, and that sale closes in March. And Buyer2 moves into the house (which is now his) in March. Lets suppose I discover this in September. This means that Buyer2 has been happily living in his house for the past 6 months, since March. Is it conceivable that the Court could revoke the deed, invalidate the sale to Buyer2, and order seller to sell the property to me (the original buyer)?
ALternatively assuming the Court refuses to order specific performance (considering the circumstance), how could damages be determined? Also assume for a second that the Contract does not contain any clause regarding “liquidated damages”. How would the Court determine damages in this type of case?
Furthermore let us also assume that there were so many things that I could have done to prevent that sale to Buyer2 (such as recording a memorandum of my contract in January) but let us assume that I failed to do all that. Let us also assume that I really do not care much about money damages, and that what I really would like is to get that house back and live in it myself because God told me that its the house for me (just kidding). Lets suppose that this is my situation at this time, and that I have decided to pursue it legally. I am curious as to how a Court would likely resolve a case of this nature.
Ben, or anyone, please…thanks.
Re: The Question, Reformulated - Posted by David (Los Angeles)
Posted by David (Los Angeles) on December 05, 2004 at 10:59:39:
Is this a homework assignment? Why all the assume this/assume that? TV pilot?
Re: The Question, Reformulated - Posted by Rob FL
Posted by Rob FL on December 05, 2004 at 10:47:18:
First to record the deed wins. The 2nd purchaser recorded his deed before yours. You weren’t in possession of the property, i.e. living in it, so the 2nd purchaser had no way to know of your contract.
If you would have filed a lis pendens or memorandum of agreement before the 2nd purchaser closed, they would have been on notice of your contract.
Now your only remedies are with suing the seller for damages unless somehow you can prove this 2nd buyer was not a bona-fide purchaser or somehow knew about your contract and ignored it.
Buyer 1 is SOL… - Posted by Ben (NJ)
Posted by Ben (NJ) on December 05, 2004 at 08:10:19:
as long as buyer two is a bona fide purchaser, there is no way a judge is going to rescind the sale and throw out an innocent third party who has already lived there for six months.
The next reality TV series (nt) - Posted by director
Posted by director on December 05, 2004 at 19:35:15:
?
Re: The Question, Reformulated - Posted by GaryB
Posted by GaryB on December 05, 2004 at 14:13:19:
Hello Rob; Hello Ben:
Thanks for your response. I think it makes a lot of sense. To reiterate what you said, the Court will likely not order specific performamce because:
Buyer2 had no notice of any cloud on the title
Buyer2 recorded his deed first
Buyer2 was in possession first
Buyer2 is an innocent third party
Ok… so Buyer1’s remedy is only against Seller for Breach of Contract. But how would the Court determine damages, in the abscence of a “liquidated damages” clause in the Contract?
Re: Buyer 1 is SOL… - Posted by Jim FL
Posted by Jim FL on December 06, 2004 at 16:38:26:
Ben,
I beg to differ.
Here is why?
A real life experience.
I was working with an investor in another state, North Carolina.
He had an option on a house, a very high end house, with LOTS of equity.
LOW PRICE, and a buyer ready to close, within days, cash.
The seller then had a friend who heard about the pending sale, and was outraged.
Apparently the sellers friend had offered to buy the house previously, for more than my investor friends option was for.
The seller and his friend never got together, and the seller called my investor friend for help when facing foreclosure.
The seller went behind my investor friends back, and sold the house to his friend, for more than the option amount my friend had locked in.
There was public record of the option, as an affidavit was recorded.
When the deal closed with the buyer behind my investor friend back, the new lender required title insurance, which was furnished by the closing attorney for the rear end deal.
Bottom line, they overlooked the option, and the recorded document, even though they had knowledge of it, as proven later in court, by correspondence and meetings between all parties.
There were even settlement offerings along the way.
While I cannot give financial details, because its not my deal, the court ruled in favor of my investor friend, and his end buyer.
The sale to the sellers friend was reversed, and the sellers friend was forced to move from the property.
There was money paid for damages, as well as profit made when the deal closed with my investor friends end buyer.
The court case took as I recall, nearly a year.
Frankly, the only reason it was pursued was because their was an end buyer in the equation that had to be looked out for.
I think my friend would have just walked for a few bucks for his time and efforts, without his buyer in place, but that was not the case.
So, yes, a sale was reversed.
My friend posted details about this deal elsewhere, and it has been mentioned here as well.
He won because he did everything right, and documented everything along the way.
The mess actually was the result of some large ego’s with VERY HIGH incomes to back up their antics.
This was a million dollar house in an exclusive country club.
Anyway, I would have probably agreed with you, had I not been thru this one with my friend.
Since I assisted in setting it up, I was deposed for the case, and kept privvy to its progress and eventual outcome.
Take care,
Jim FL
Re: The Question, Reformulated - Posted by Rob FL
Posted by Rob FL on December 05, 2004 at 15:12:09:
You would probably have to file a lawsuit for breach of contract and in your complaint you would have to state your “actual damages”. You would probably have to list your actual expenses plus any non-monetary damages (emotional trauma, time wasted, pain & suffering, etc.) I.E. you spent $100 on gasoline driving back and forth, $300 on inspections, $400 on an appraisal, and $1 million in emotional trauma. It’s the American way.
Re: Buyer 1 is SOL… - Posted by GaryB
Posted by GaryB on December 07, 2004 at 02:14:15:
Wow! I am just reading Jim’s real life experience, and its amazing how it corresponds almost entirely with the fact pattern that I posed! What an amazing story!
The story proves that everyone was right. Ben was right. Rob was right. And Jim and Nike are also both right. Remember that we had concluded that Buyer2’s purchase in my example would not be reversed because he had neither actual nor constructive notice of any contract on the property, since nothing had been recorded. Also Buyer2 was an innocent third party with clean hands, that is, he was a bonafide purchaser without notice of any cloud on the title.
But in the story that Jim related, the Seller’s friend was not a bonafide buyer. And he had notice of the option contract because it was recorded and probably showed up in the Schedule B of his preliminary title report. Yet he chose to ignore all this for pecuniary reasons. In short he unjustly sought to deprive Jim’s investor friend the opportunity to make a large profit. So Buyer2 and the buyer in Jims story are not not the same, and that explains the different results. So everyone was right.
By the way I also posted this question on the legal forum and “eric” responded with an answer that basically echoed all that you all had mentioned. WIth permission from “eric” I will repost his response here. Here is eric’s response.
=======================================================
Posted by eric on December 06, 2004 at 12:39:56:
In Reply to: When is Specific Performance no longer feasible? posted by GaryB on December 04, 2004 at 14:23:51:
Specific Performance is considered by the courts to be an “extraordinary remedy” in which you must have no adequate remedy at law. With residential real propery, courts have traditionally deemed such property as “unique” in order to provide a buyer no other remedy at law. In recent years, some courts have been deviating from this rule and awarding pure damages instead.
If a third party buys the property that you were trying to purchase, they must be a “B.F.P.” (bona-fide purchaser for value without notice). If the new purchaser was on notice of your prior contract and that there was a potential dispute, then a court “may” reverse the transaction. However, this is rare and you would have the burden to prove such knowledge.
In “real life,” specific performance suits rarely make it to trial. It is just too expensive. Most real property disputes are resolved in mediation or after most of the discovery is complete and the case can be properly assesed and settled.
Re: Buyer 1 is SOL… - Posted by Ben (NJ)
Posted by Ben (NJ) on December 06, 2004 at 19:03:21:
Since the option was recorded, buyer two had actual or constructive knowledge of it, therefore may not be considered a BFP. Anyway, enough with this thread, whatever happened to that realtor who assaulted you?
C’mon— follow the fact pattern… - Posted by Nike
Posted by Nike on December 06, 2004 at 17:11:18:
Ben said the court will not reverse if the buyer is a bona fide purchaser. In your example the buyer was not a BFP- he had knowledge of the your investor friends option (legal interest in the proeprty), therefore he’s not a BFP–he loses. You’re comparing apples-to-oranges.
Re: The Question, Reformulated - Posted by GaryB
Posted by GaryB on December 05, 2004 at 22:38:28:
Thanks, Rob.