Homebuyers have few protections -- except court -- if a seller changes his mind.
During a real estate transaction, both the buyer and seller sign a contract that details everything about the deal.
But if you're on the buyer side, buyer beware.
That's because if the seller backs out, unless the buyer is willing to spend thousands of dollars in attorney and court fees without any guarantee of winning, the buyer is out of luck.
That's what happened to Kristin Lauler, a single mom of a 4-year-old, who was shocked to learn there were few protections for buyers if the seller bails. She wanted to share her story so other buyers would have a better understanding of the reality of what happens if a deal goes bad.
Lauler said she spent 10 months living with friends and moving often while she searched for a home she could afford -- something in the $120,000 range.
"A mortgage payment on a $120,000 house is several hundred less than a rental of a two-bedroom garden apartment," she said.
She found one. It was a two-bedroom Cape Cod owned by an elderly woman, and the parties signed the contract in late November 2014, with a closing date of Dec. 30.
The timing was important to Lauler because, per her divorce, she needed permanent housing for her child by January.
They were out of attorney review on Dec. 3, at which time the seller asked to move the closing to February. Lauler agreed, and she set up an inspection for Dec. 13. That morning, the seller said she wasn't feeling well and the inspection needed to be rescheduled.
"I didn't think anything of it," Lauler said. "The seller had already moved out most of her belongings and was planning to move in with one of her daughters... she had been actively looking at over-55 communities, as the maintenance and upkeep on her property was becoming too much."
The inspection was rescheduled for January, but on Dec. 18, Lauler received a letter from the seller's attorney.
"My client has instructed me to cancel this Contract of Sale and cease proceeding on this transaction. All deposit/escrow monies may be returned to the buyer," the attorney said in the letter, noting the seller's health has declined and she decided she wanted to stay in the home.
Lauler was devastated.
She had a court-imposed deadline to find permanent housing for her child or she risked losing custody. She had spent months touring schools and after-care programs, and there were few other homes in her price range. She had paid money for a storage facility and other costs related to the deal.
Kirstin Lauler plays with her son Corbin, 4. Lauler spoke to several attorneys about her options.
"I was told in the ‘thousands’ of times the attorney had brought real estate transactions to court, never did the buyer end up with the property or any form of compensation for all the time and money they had invested in purchasing a property," she said.
Other attorneys offered similar advice, she said.
So court wasn't a gimmie. It would cost an estimated $15,000 to $20,000 -- money Lauler didn't have -- and it was unlikely a judge would force the seller to stick with the deal, or even award attorney's fees.
Plus, it could take as long as 18 months to complete a case.
In back-and-forth letters between the two sides' attorneys, the seller made it clear that despite the potential legal issues, the seller wouldn't change her mind.
So Lauler's attorney made an offer, documents show, asking the seller to pay Lauler $5,000 for her expenses.
"I offered roughly one-third of what her cancelling the contract is going to cost me," Lauler said.
The seller countered with $1,000.
"Salt in the wound," Lauler said. "The seller knows what I just learned: that being ‘under contract’ means nothing if the buyer doesn’t have $15,000 to hire an attorney."
RECOUSE FOR BUYERS?
Lauler is correct that without going to court, buyers have little recourse if a deal goes sour, especially if the buyer has no money to pay attorney fees.
"The seller usually has a deposit they're holding, while the buyer has nothing," said Anthony Vignier, a Kearny-based certified financial planner and attorney.
A buyer can't just reach into the seller's pocket, said Ralph Holmen, associate general counsel for the National Association of Realtors.
That's why going to court may be the only real answer, however expensive or impractical.
Lauler could sue for what's called "specific performance."
"This is a breach of contract," Holmen said. "She could ask a court to require a seller to actually convey the property. It's unusual but not impossible. Or alternatively, she could seek damages."
Holmen said the court would probably be reluctant to order a seller to sell a property.
If a seller backs out because a buyer couldn't get a mortgage, that's one thing. If a seller backs out for no material reason, the buyer -- for a solid court case to come later -- should move on with the process of getting the mortgage and setting up a closing date, Vignier said.
Even if the seller indicates he's not coming, the buyer's attorney should next send a 10-day "time is of the essence" letter, acting as notice of the closing.
Then the buyer should go through the formality of attending the closing on the date indicted in the letter, he said.
"If the seller does not appear on that date, the buyer can file suit to compel the sale, or demand her costs/damages be paid -- usually done by a formal demand letter," Vignier said.
Then the buyer would have to file suit in court to obtain a judgment. This could be contested by the seller or if the seller doesn't answer, it could result in a default judgment, which then becomes a judgment lien on the property, Vignier said.
"While the litigation is taking place she can also have her attorney file a lis pendens with the county, which puts the public on notice that the property is subject to a legal dispute," he said.
Small claims court would handle damages that are less than $3,000 (or $5,000 if the dispute was about a security deposit). You'd need Special Civil for up to $15,000, and Superior Court for anything more, Vignier said.
Can a buyer create further protection to avoid all this?
"You could add a clause to the contract that specifies liquid damages if there is a breach," Holmen said. "The seller would be required to pay and it would give the seller a strong incentive to complete the sale."
He said it could also be written into a contract that if there is litigation, the loser has to pay the winner's attorney's fees.
So maybe that encourages the seller to go through with the sale, or you could end up in court anyway.
Lauler hasn't made a final decision about her next move. She said she had conversations with the seller's daughter, who at first said her mother couldn't pay more than the offered $1,000. Then the daughter asked for receipts proving Lauler's expenses, saying her mother would think about paying.
"Honestly, if I'm making copies of documents, I would send it to court so the judge could decide and enforce what is fair, not further leave it in the hands of the seller to 'think' if she wants to pay something or not," Lauler said. "After all, even is she agrees to pay something, we see how good her word is and following through with it."
Have you been Bamboozled? Reach Karin Price Mueller at Bamboozled@NJAdvanceMedia.com a>. Follow her on Twitter @KPMueller. Find Bamboozled on Facebook. Mueller is also the founder of NJMoneyHelp.com.