As you know, AZREIA members don’t need an attorney to tell them that the market is hot and that prices have been increasing exponentially. Buyers are regularly getting into bidding wars to get homes under contract. There is nothing better for an investor than finding a property off-market and getting it under contract before anyone else gets a chance to bid on it. However, such a rosy picture can turn negative really quickly if the seller finds another buyer who offers more money, and the seller refuses to close escrow. 

 

The call we always get then, is that you, as the investor, have a contract giving you the right to purchase the property – so isn’t what the seller is doing illegal? It’s not illegal in the sense you are thinking but actually a breach of contract. Unless you have previously breached the contract, it sounds like the seller is breaching the contract and you have a right to enforce the terms of the contract. This is the critical point – you have a contract and a legal right to enforce it but that doesn’t mean that the seller is automatically prevented from selling it to someone else. 

 

If you don’t act quickly, the seller may sell the property to another person and you likely won’t be able to get title. You could still sue the seller for breach of contract, but at best you would be entitled to an award of monetary damages. On the other hand, if you want to get the property then you need to act fast. The proper way to prevent the sale of the property would be to file a lawsuit and record a Notice of Lis Pendens. As we have noted in previous articles, the lis pendens will prevent the transfer of clear title to third parties: in other words, if the house is sold, the buyer takes title subject to your rights. Therefore, if you proceed through the litigation and win, you can get title, even though it has been transferred to another person.

 

This distinction of whether you timely sue is important – if you sue and record a lis pendens, you can get title to the home, whereas you wait until after a transfer, you may be limited to getting monetary damages. While monetary damages may sound good, the problem is you have to litigate and prove what the actual damages are and that can be an expensive undertaking. For example, you could sue for lost profits, but then you may have to bring in experts to testify about the value of the property and what it could be sold for.

 

On the other hand, specific performance gets you title to the home and requires less proof or issues to litigate. Arizona courts have repeatedly held, “Specific performance is available as a remedy to enforce contracts for the sale of real property because land is thought to be unique and the remedy of damages is usually considered inadequate.” Canton v. Monaco Partnership, 156 Ariz. 468, 470 (1987).”  Instead of having to prove what damages you sustained, if you sue for specific performance, once you prove that the seller breached, you can force the seller to close and get title to the home. And let’s be honest, that ultimately is what all investors want – the property and not spending as much on attorneys’ fees.

 

Therefore, the moral of the story is that when a seller breaches the contract, make sure you act fast to protect your rights.

by Mark B. Zinman, Attorney Zona Law Group, P.C.