Anyone can sue anyone else for any reason as a result of actions during a property transaction. The question involved in winning a lawsuit rests with proving the grounds for the legal action. Real estate deals can go off the tracks at many places, and adding the extra track required for a short sale means a longer trip and more track for potential derailings. Understanding the short sale risks before placing an offer might help you avoid going to court.
A "short sale" real estate transaction is a term used when the sale price of the house is less than the seller's mortgage owing on the house. Other terms used to describe the situation are "under water" on the loan or "selling short." Short-sale transactions require the lender to accept less for the mortgage. The lender in some short sales requires the buyer to accept a personal loan, unsecured by any property, for the remainder of the loan balance after the escrow on the house closes. The seller might not agree to these terms and prefer to let the house go into foreclosure.
Short-sale real estate transactions require a communication network involving you, the seller and your real estate agents, the escrow officer or property attorney, depending on your state's real estate laws, and the original and new lenders. The seller isn't the only person with the opportunity to turn down a short-sale offer. In fact, the lender typically has the final say in approving your offer on the home sold under the short-sale agreement.
Escrow is an independent third party charged with holding the money for both buyer and seller and assisting with creation and organization of the legal documents required by law and required under your sales agreement. Escrow also facilitates moving the sale along by collecting the signatures and required funds involved in the sale agreement. If you sue the seller for failure to complete the deal, your attorney typically notifies escrow to hold any funds contributed by the seller for possible attachment. If your seller ends up selling the house to another buyer, your attorney may file an injunction on that sale and attach any money earned by the seller or lender in that escrow transaction.
In a short sale in which the seller refused to proceed with the sale after a change of heart, you have the option of suing to force the seller to complete the transaction. This breach of contract lawsuit asks the court to require the seller to complete the sales contract as written and signed. Asking for damages in a lawsuit for failing to close in a real estate transaction involves proving you were somehow damaged. If you lose money as a result of the sale cancellation, that provides possible grounds for the lawsuit, but you must prove the party you sued caused your damages. Some states, including California, limit the amount of damages the buyer can receive as a result of a lawsuit for failing to complete the short sale transaction.
- Nolo.com: Short Sale of Your Home -- Is It Right for You?
- Arizona Department of Real Estate: Short Sale Seller Advisory
- California Association of Realtors: Legal -- MLS Short Sale and REO Issues
- NJ.com: Getting Escrow Funds Released No Easy Deed
- California Land Title Association: Title Reporter Series -- The Functions of Escrow
- Realtor.com: What Is Escrow?
- California Civil Code: Section 1675-1681
- Nevada Revised Statutes: Escrow Agencies and Agents
- Slote and Links: Real Estate Disputes and Damages -- Court Analyzes Difference Between Suing for Breach of Contract Versus Making a Claim for Recission
- Nolo.com: Breach of Contract Cases in Small Claims Court
- Pixland/Pixland/Getty Images
- How to Buy a Home Before It Goes to the Sheriff Auction
- Is the Buyer Responsible for Short Sale Repairs?
- Freddie Mac HAFA Rules
- Can a Buyer Sue a Seller in a Short Sale if They Do Not Proceed?
- How Does a Backup Offer Work on a Short Sale?
- How a Buyer Can Speed Up the Short Sale Process
- Is a Short Sale Good for a First-Time Homebuyer?
- How Does Buying a Short Sale Work?
- How to Stop a Short Sale
- Steps in a Bank Short Sale After an Appraisal Is Ordered