What Happens if a Homeowner Backs Out of a Sale at Closing?
A real estate closing represents the final stage in buying or selling a property. The closing is when the buyer presents the seller with a check for the purchase price and the seller signs a deed officially transferring ownership. And while most real estate closings are routine affairs, there are cases where one party tries to back out of the deal at the last minute. When that happens, the other party may attempt to enforce the original sales contract through what is known as a specific performance lawsuit.
Homestead Exemption No Protection From a Specific Performance Lawsuit
For example, a Florida appeals court recently addressed a case involving a jilted buyer’s attempt to compel specific performance after the sellers reneged at closing. A couple agreed to sell their home to a developer. The parties signed a sales contract. The developer performed its end of the bargain, paying a deposit and indicating its willingness to complete the deal on a specified closing date. For some reason, the sellers refused to close.
The developer sued the couple, demanding both specific performance—that is, forcing the couple to complete the closing and transfer ownership of their home—as well as monetary damages. Additionally, the developer filed a lis pendens against the property. This is a formal notice that a lawsuit has been filed disputing the title or ownership of a particular parcel of property; it serves as a warning to a lender or another potential buyer.
The couple moved to dismiss the developer’s demand for specific performance, arguing it would amount to a “forced sale” of their home in violation of Florida’s Constitution. Most states have what is known as a “homestead exemption,” a law that protects a property’s owners interest in their home equity from creditor claims. Florida’s homestead exemption is actually written into the state constitution and protects an unlimited amount of equity (subject to certain restrictions on the size of the property) from “forced sale under process of any court.”
In this case, the Florida Third District Court of Appeal held the homestead exemption did not preclude specific performance of a contract where the owners voluntarily agreed to sell their home. Reversing a lower court’s decision in favor of the couple, the appeals court noted, “Florida law has long recognized the use of specific performance to enforce contracts for the sale of homestead property.” Indeed, the parties’ own sales contract stated specific performance was a remedy in the event of a breach. In this context, then, specific performance would not constitute a “forced sale.”
Contact a Florida Real Estate Lawyer
There may be many reasons why a seller (or buyer) might seek to back out of a previously agreed upon real estate contract. But any such issues should be dealt with before a closing date is scheduled. It is never a good idea to unilaterally renege on a contract, especially when the other party is in a position to sue for specific performance and additional damages. You should always consult with an experienced St. Petersburg real estate attorney before entering into any type of contract. Contact the attorneys at Carnal & Mansfield, P.A., if you need to speak with someone right away.