Why Playing Hard Ball With Your Residential Real Estate Transaction May Backfire

Whether you are a first-time home buyer or a seasoned veteran, a recent ruling from the Third District Court of Appeal will make you think twice about your negotiation tactics and obligations when entering into an “As Is Residential Contract for Sale and Purchase”.

In June 2018, the Third District Court of Appeal affirmed the trial court’s entry of a summary judgment in favor of a seller in a failed residential real estate transaction and also affirmed the trial court’s award of attorney’s fees and costs to the seller.  Specifically, the Third DCA held that the buyer’s payment of the second deposit constituted a waiver of the buyer’s right to terminate the contract without penalty; the buyer’s anticipatory repudiation of the obligation to close on the sale triggered the seller’s contractual right to elect the option to retain the escrowed deposit; and the trial court did not abuse its discretion in awarding $850,000 in attorney fees and costs to the seller.  See Diaz v. Kosch, 2018 WL 2945390 (Fla. 3d DCA 2018).

In Diaz v. Kosch, the buyers and sellers entered into a printed form “As Is Residential Contract for Sale and Purchase” for a home in Coral Gables, Florida.  The buyers made a $50,000 deposit with the buyers’ broker serving as escrow agent. A second deposit of $235,000.00 was payable to the escrow agent by September 12, 2012, the date at which a ten-day right of inspection and right to cancel was to expire absent buyer termination.

During the ten-day inspection period, the buyers learned that there were open building permits and that unpermitted work might have been performed as part of the sellers’ renovations in 2009 and 2010.  The day before the inspection period was to expire, the buyers notified their broker by email that they had reviewed the permit history for the home and were very concerned that their visual inspection of the property did not coincide with the permit history.  However, the communication did not request an extension of the inspection period nor served as a termination of the purchase contract.  The following day, the buyers emailed these concerns to the Sellers and their broker.  On the last day of the inspection period, September 12, 2012, the buyers emailed the sellers a signed message with a legend, “This communication is sent for settlement purposes only,” accusing the Sellers of misrepresentations and claiming that the property had a significant diminished value than what the buyers offered to pay for it. Id. at 3.  Instead of invoking the right to cancel the contract, pursuant to the inspection period provision in the contract, the buyers made legal threats, argued for a significant price reduction, and demanded the sellers produce certain documents relating to the alleged open permits.  The buyers then sent a second email later that day advising they would tender the second deposit due under the contract, but reserving all rights under the contract.

The parties continued discussions regarding  the alleged permitting issues as well as earlier radon inspection reports with elevated readings in an upstairs bedroom; however, with no written or unwritten extension of the inspection/cancellation period. On September 24, 2012, with no resolution of the parties’ disagreements and before any financing commitment was due to be provided by the buyers to the sellers, buyers’ counsel notified the sellers’ attorney by email letter that the buyers were terminating the contract and instructed the escrow agent to return the $285,000 deposit to the buyers.  The notice of termination did not claim a breach by the Sellers or report an inability by the buyers to close the transaction based on their inability to procure a financing commitment..

Thereafter, the buyers commenced a lawsuit against the sellers and their brokers claiming breach of contract, conversion, fraud in the inducement, fraud in concealment, negligent misrepresentation, and conspiratorial fraud. The sellers counterclaimed for the buyers’ breach and for the deposit as damages for the buyers’ default.  After extensive discovery was undertaken, the sellers and other defendants moved for summary judgment.  The trial court granted summary judgment for the brokers and then for the sellers (as to the buyers’ claims and the sellers’ counterclaim for the still-escrowed deposit).  A final judgment awarding the sellers $850,000 in attorney’s fees and costs was subsequently entered.

The appellate court’s opinion in this case thoroughly analyzed the buyers’ appellate arguments and provided the legal bases supporting its decision to affirm the trial court rulings. As such, it is not my intent to regurgitate that analysis for this article. Rather, the purpose of this article is to make potential buyers and sellers aware of the pitfalls of residential real estate transactions and why is it so important to hire a lawyer who will become intimately familiar with the provisions of your residential sales contract and protect you from these pitfalls.   The “As Is Residential Contract for Sale and Purchase” contains several critical deadlines and obligations that may cause buyers and sellers serious repercussions if either side fails to comply.  It can be easy for parties to get caught up in trying to get the deal closed and trust that, if a critical deadline needs to be extended, that the other side will agree to it.  Never assume that will be the case. Otherwise, you could end up involved in protracted litigation and owing the prevailing party hundreds of thousands of dollars in attorney’s fees.

At Maspons Advisory Services, we can help guide you through the real estate transaction maze.  However, if you happen to get lost and find yourself on the courthouse steps, we can help get you back home safely, too.