Mitigating damages

[mwbarton]

What is the name of your state? Virginia

A buyer backed out of a contract to purchase my home and I have placed it back on the market. My new house is almost completed so now I am very motivated to sell my current home. My contract does allow for a non-defaulting party to collect expenses/damages, attorney's fees and/or court costs and my real estate agent has said that he will also pursue his commission as allowed in the contract. The buyer kept my house off the market for the early part of summer (June 1 - July 22) and the market has died down considerably. I have already dropped the asking price by 10% and still have very few inquiries and no offers. I would like to sell the home quickly and I am considering another price reduction but I am concerned about being able to recover damages from the previous buyer. Is there a limit as to how low I can drop my asking price or accept an offer and realistically expect a court to award damages?

The buyer has refused mediation and refuses to release their earnest money. Court is the only option now and I don't want to damage my ability to receive a satisfactory judgment.

[nextwife]

WHY was the contract cancelled?

[mwbarton]

Please excuse the length as it does get somewhat complicated.

It started with a low appraisal ($6,000). They notified us the next day and we found several errors and omissions in it and requested a second appraisal. The second appraisal was fine and was accepted by the lender. Our contract allowed the buyer five days after receiving a low appraisal to request a price reduction however a price reduction was sent to us on the sixth day so we refused it and explained the contract to them. The buyer then requested to be released from the contract, we refused. The buyer then lied to the mortgage broker and said that they did no longer had funds to close so a letter declining the loan was sent, along with another request to be released from the contract. We asked for clarification and since we were providing them with 3% and their earnest money would cover the remainder, their claim of not having closing costs was not valid. We later received a letter of conditional loan approval pending some customary documents necessary to close. After notifying the buyers' attorney that we had no intention to execute any release and requesting that the buyers proceed to settlement, we receive word from their attorney that they have had a change of heart and will not purchase the house.

The buyer got hung up on the initial appraisal and are now using it as their excuse. The appraisal was conducted by a trainee (who conducted the inspection accompanied only by is children) and used three comparable houses between .85 and 3.10 miles away. The condition of these houses were vastly different from mine, the other sales included no incentives (I was contributing 3% towards closing) and the only adjustments were made for square footage. The square footage for my house was also calculated incorrectly. With all of these errors, I contend that I had the right to request an appraisal by an experienced professional while the buyers believe that the first appraisal is written in stone because it was conducted by someone that they knew (which happens to be an ethics violation).

[HomeGuru]

Originally Posted by mwbarton

Please excuse the length as it does get somewhat complicated.

It started with a low appraisal ($6,000). They notified us the next day and we found several errors and omissions in it and requested a second appraisal. The second appraisal was fine and was accepted by the lender. Our contract allowed the buyer five days after receiving a low appraisal to request a price reduction however a price reduction was sent to us on the sixth day so we refused it and explained the contract to them. The buyer then requested to be released from the contract, we refused. The buyer then lied to the mortgage broker and said that they did no longer had funds to close so a letter declining the loan was sent, along with another request to be released from the contract. We asked for clarification and since we were providing them with 3% and their earnest money would cover the remainder, their claim of not having closing costs was not valid. We later received a letter of conditional loan approval pending some customary documents necessary to close. After notifying the buyers' attorney that we had no intention to execute any release and requesting that the buyers proceed to settlement, we receive word from their attorney that they have had a change of heart and will not purchase the house.

The buyer got hung up on the initial appraisal and are now using it as their excuse. The appraisal was conducted by a trainee (who conducted the inspection accompanied only by is children) and used three comparable houses between .85 and 3.10 miles away. The condition of these houses were vastly different from mine, the other sales included no incentives (I was contributing 3% towards closing) and the only adjustments were made for square footage. The square footage for my house was also calculated incorrectly. With all of these errors, I contend that I had the right to request an appraisal by an experienced professional while the buyers believe that the first appraisal is written in stone because it was conducted by someone that they knew (which happens to be an ethics violation).

**A: in my opinion you have no case if your contract contained a financing contingency.

[mwbarton]

Originally Posted by HomeGuru

**A: in my opinion you have no case if your contract contained a financing contingency.

Even though the latest document from the lender states that they have a conditional loan approval?
The financing contingency states that the purchaser must make diligent effort to secure a loan. Diligent effort shall mean that Purchaser has provided all information or documentation requested by a lender within seven days of each such request.

I am only trying to find out if there is a point where the court will limit damages due to a substantial difference in the actual sales price and the defaulting buyers' contract price.

[mwbarton]

Does anybody have an opinion on this?

[HomeGuru]

Originally Posted by mwbarton

Even though the latest document from the lender states that they have a conditional loan approval?

**A: yes since conditional loan approval means nothing in terms of closing. It is the actual loan funding part that removes the financing contingency in the contract.

****************
The financing contingency states that the purchaser must make diligent effort to secure a loan. Diligent effort shall mean that Purchaser has provided all information or documentation requested by a lender within seven days of each such request.

**A: read the language again. Do you see that part that states "secure" a loan? The only way a loan can be secured is if the lender funds the loan and the transaction is closed. If the lender

********************

I am only trying to find out if there is a point where the court will limit damages due to a substantial difference in the actual sales price and the defaulting buyers' contract price.

**A: yes, the criteria is used by the courts all the time.

[seniorjudge]

Originally Posted by HomeGuru

**A: yes, the criteria is used by the courts all the time.

I agree.

"Conditional loan approval" is mortgage broker talk for "I'm working on it"!

[HomeGuru]

Originally Posted by seniorjudge

I agree.

"Conditional loan approval" is mortgage broker talk for "I'm working on it"!

**A: and the legal definition is "we may or may not fund your loan and if we do or do not, we have no liability in the transaction."

[nextwife]

"Conditional", meaning the approval is given but only on the CONDITION that their list of additional requirements also be met.

[HomeGuru]

Originally Posted by nextwife

"Conditional", meaning the approval is given but only on the CONDITION that their list of additional requirements also be met.

**A: and on subprime loans, conditional means that the lender will make the loan underthe condition that the lender is still in business and doing the type of loan applied for.

[mwbarton]

The conditional approval spelled out specific items that the buyers were to supply to the lender. The buyers failed to produce the items requested by the lender as required by the contract. So, yes, the financing contingency was not met however it was solely due to the buyers' failure to "make diligent effort to secure a loan". That is defined as a default in the contract and entitles me to collect expenses and damages, as specified in the contract.

My question has still gone unanswered. Is there a point where the court will limit damages due to a substantial difference in the actual sales price and the defaulting buyers' contract price?

[HomeGuru]

Originally Posted by mwbarton

The conditional approval spelled out specific items that the buyers were to supply to the lender. The buyers failed to produce the items requested by the lender as required by the contract. So, yes, the financing contingency was not met however it was solely due to the buyers' failure to "make diligent effort to secure a loan". That is defined as a default in the contract and entitles me to collect expenses and damages, as specified in the contract.

My question has still gone unanswered. Is there a point where the court will limit damages due to a substantial difference in the actual sales price and the defaulting buyers' contract price?

**A: I answered your question.