Buyer beware: Serious consequences for refusing to close without a valid legal reason
In this highly volatile market of limited inventory and wildly fluctuating prices, a recent Court decision (October 2021, Pomata Investment v. Yang) reminds us of the serious consequences that may result for a Buyer who refuses to Close a transaction without a valid legal reason.
Facts: the Buyer had entered into a firm agreement, in September 2016, for the purchase of a new build home for $2,200,000.00. Given the market conditions at that time, the Buyer believed that they would be able to flip the house for a profit and perhaps assign the agreement before Closing. The Closing Date was scheduled for April 2018. The construction of the home was on schedule for the agreed upon Closing Date. By that time, the market had cooled, and the Buyer had not been able to flip the home as they had hoped. Approximately 6 weeks before the Closing Date, the Buyer informed the Seller that they would not be able to Close the transaction. This amounted to an anticipatory breach of the Agreement, so the Seller immediately put the house up for sale and eventually got one offer for $1,500,000.00 and sold the home. The Seller successfully sued the original Buyer for damages and obtained Judgment totaling approximately $750,000.00 plus costs. The Buyer had a choice of either passing on the risk of the cool market to the Seller (which they did) or doing everything in their power to close the transaction and taking “control” of the problem. Once they owned the property, the Buyer may have had more options which would have included living in the home and holding on until market conditions improved.
The lesson is that Buyers can never be flippant about Closing or not Closing. If the deal is firm (or if their reasons for not wanting to close are weak) the Buyer should be doing everything in their power (including begging and borrowing from family or friends or private lenders) to Close the deal, because the consequences of not Closing can be dire.