What are a seller’s remedies when a buyer breaches a sales contract or vice versa?
Seller’s remedies for a Maryland breach of contract
It is an unfortunate reality that buyers frequently walk away from a home sale even after signing the contract. Typically, this is the only scenario in which a buyer breaches a sales contract:
- The buyer signs a contract to purchase the house or property. Within the contract is a stipulation that the buyer will apply for and diligently pursue financing. Some home sales contracts are cash contracts, but most contain financing contingencies.
- If the buyer does not get the financing, they walk away from the sale.
Buyers do this frequently. They won’t follow the terms of the contract because they changed their mind or found a better or cheaper house. They may not have paid much in the form of a deposit and think they can simply walk away, leaving the seller with the token amount of deposit money. Although many people do this, it’s not necessarily legally correct, and the seller can sue the buyer for their damages.
The legal process in that situation would go like this:
- A buyer is contractually obligated to buy but doesn’t fulfill their responsibilities to come to the settlement table and pay the purchase price.
- The seller resells the house, possibly at a loss. For example, a homeowner sells their house for $200,000, but the buyer breaches the contract. The seller can only fetch $150,000 from the next buyer.
- The measure of the seller’s damages would be the difference between what the seller would have made if that buyer had completed its obligations and what the seller got in that next sale. In the example above, the seller can recover the $50,000 difference as damages.
That is a fairly general example and it’s important to understand that there are many exceptions to the rule. For example, a homeowner can’t just sell to the next person at a cheap price without trying to mitigate their damages and put responsibility for the difference on the buyer who walked away. It isn’t smart for a seller to do that.
An issue that affects lots of sellers is that buyers may try to use a “failure to obtain financing” as an excuse from the sale. This would protect them from damages for a breach of contract, and perhaps even allow them to recover their earnest money.
Buyer’s remedies for a Maryland breach of contract
Another concern is whether or not a seller can force a buyer to buy. Put simply, the answer is no. Maryland law does not allow a seller to force a breaching buyer to buy the property. A seller cannot make a buyer buy through an action for “specific performance,” which is a court-ordered action that calls for a contractual duty to be carried out in cases where damages would not be an adequate remedy.
However, under Maryland law, a buyer can make a seller sell through an action for specific performance. That may seem unfair and one-sided, but the seller still has the upper hand. The seller has the unique real estate and can be made whole in money damages if the buyer doesn’t buy. However, the reverse is not true. Because of the unique nature of real estate, the buyer cannot be made whole by money damages. The only way to make the buyer whole if the seller doesn’t complete settlement is to force that seller to perform the contract and to deed the property to the buyer.
Another remedy for buyers whose home sale contract fell through is to terminate the contract and receive a return of the deposit. Most contracts have a termination clause stating under which conditions and in what situations a buyer can cancel. To prevent further problems or confusion, the buyer should cancel the contract before the closing date.