Although it is preferable for real estate purchases and sales to run smoothly, this is not always the case. Real estate disputes may arise for various reasons, such as failure to perform under the terms of the contract, failure to disclose a defect, or varying interpretations of a particular contract provision. Due to the large investment involved with real estate, these types of disputes should be addressed in order to find a favorable resolution.
Specific Performance in Real Estate Contracts in California
Specific performance is an optional remedy that is available to enforce contracts. In lieu of monetary damages for breach of contract, a party may seek to compel performance of the contract and to receive the fruits of the performed contract. The remedy of specific performance is not available in most contracts and a party must accept monetary damages as the remedy.
An exception to the general rule concerns the purchase of real property. In the law, real property is considered unique and therefore, damages may not be an adequate legal remedy. Thus, if a party to a real property purchase agreement wants to specifically enforce the contract rather than receive monetary damages, the remedy is permissible. Specific performance is often sought where the real property is truly unique and the buyer wants the property for reasons other than price. However, price may also be a motivating factor, especially when the real property is rapidly appreciating, or if the purchase price was below market value.
Nondisclosure of Defects
A potential legal liability for sellers and involved real estate professionals concerns nondisclosure of defects in the sale of residential real estate. A patent defect is one that is readily observable or evident. A latent defect is defined as a deficiency which is not apparent by a reasonable inspection. In some instances, the discovery of latent or hidden defects may not occur for months or even years after the purchase. If a buyer contends that the latent defect would have materially affected the decision to purchase the property, it may be possible to rescind the purchase. Otherwise, the recovery of monetary damages to repair the defect is allowed. Typically, the listing real estate agent and broker are sued in such litigation because both the owner and the agent have a legal duty to disclose latent defects that are known, or that would have been discovered in the exercise of reasonable diligence.
In order to prevent this type of litigation, any material defect that affects the structural integrity of the building or affects the enjoyment of the property must be disclosed. Examples include water damages, plumbing, septic system defects, roof defects, non-permitted improvements, and other structural defects. In addition, disclosure is necessary if there are neighbor problems or events have occurred on the property which may have a psychological effect on the buyer, such as a murder or suicide on the property.
Potential buyers should place contingencies on the purchase, such as subject to a thorough home inspection, particularly for older homes. The statute of limitations in California concerning builder latent defects on real property is 10 years. The statute of limitations for patent defects is four years.
The real estate attorneys at NewPoint Law Group have experience in nondisclosure litigation in representing both buyers and sellers. If you have a hidden defect issue affecting your property, please contact us for a consultation in order to better understand your rights and duties.
Real Estate Contract Interpretation
Most real estate purchase contracts in California are on California Association of Realtors (CAR) forms. These contracts are form contracts with many fill-in-the-blank provisions, and are intended to be neutral, favoring neither the buyer nor the seller. Because attorneys are not usually involved, it is important to have a Realtor who is representing your interests to carefully explain the provisions that are significant.
There are many common terms or phrases found in real estate purchase contracts for which the parties, as non-lawyers may interpret differently, but which in fact are legal terms of art based upon objective legal standards rather than the subjective understanding of the parties. As an example, most real estate contracts have a provision known as “Time is of the Essence.” This means that for certain provisions, performance of certain duties in a timely manner is absolutely critical. The failure to timely perform may give the other party the legal right to cancel the contract or declare the contract breached. Common “Time of the Essence” deadlines include: the date the offer or any counter-offers must be accepted, the date to secure financing, the date to satisfy certain other contingencies, and the date set for close of escrow.
Another common issue in real estate purchase agreements for which the parties may subjectively disagree concerns whether a buyer’s deposit is forfeited if escrow does not close. Typically, a good faith deposit of the buyer may be lost if escrow fails to close due to a cause traceable to the buyer. For example, if the buyer is unable to obtain financing or simply decides not to complete the purchase, the deposit would typically be lost if the amount of the deposit is reasonable and is not viewed as a forfeiture. To avoid the classification of a deposit as a forfeiture, the contract should classify it as a form of “liquidated damages,” reflecting actual damages rather than a penalty. (Liquidated damages are damages that are agreed to in advance as to a specific amount by the parties because calculation is difficult to ascertain or prove.) A buyer whose deposit is not refunded may have a viable claim for damages if a court of law concludes that it is a penalty rather than a form of damages.
Another common issue of interpretation is the failure to understand the legal significance of checking off the box requiring arbitration and/or mediation as an alternative to litigation in courts of law. A general assumption is that arbitration and mediation tend to favor the sellers and real estate professionals. Thus, buyers should be cautious before agreeing to waive their rights to judicial relief before a court of law including the right to have a jury trial.
How an Experienced Roseville Real Estate Attorney Can Help
There are many additional clauses and provisions in standard CAR real estate purchase agreements for which the parties may subjectively attach different meanings that could result in litigation. Please contact NewPoint Law Group at 1-800-358-0305 or message us online if you are experiencing a dispute involving real estate.