Jim
http://www.jimsweetwater.com

I thank you for your comment, and perhaps I was not clear enough in my presentation of the facts, so I shall clarify. the standard purchase contract typically includes various conditions and/or contingencies which must be met for the contract to proceed. These may include the requirement that you make a good faith effort to obtain necessary financing or to sell your own property; or that the seller make certain repairs and provide good title. In pre-construction contracts, these conditions can be the delivery date or promise of certain amenities. If the seller does not meet these requirements, a buyer may be entitled to an earnest money refund.

On the other hand, if the buyer breaches the contract, that buyer may forfeit their full earnest money deposit. The seller injured by the breach may also seek additional damages or try to enforce the contract by asking for “specific performance” (something that has never been upheld in the State of TN to my knowledge) where a court is asked to compel the breaching party to perform their promise-to purchase. Disclaimer: If your purchase contract does not close, you should consult your attorney over the remedies that may be available and that is exactly what is happening here.

Also Alyse, you sound like a smart broker, don’t you advise your sellers to only accept an earnest money amount high enough to cover your sellers potential losses in the case the buyer does not perform? I am sure that you have had deals fall through in the past, and yet, I don’t think that you’ve ever helped your sellers sue a buyer for damages in a TN court of law. I can only assume that it’s because you advised your sellers correctly and only had them except offers with adequate amounts of earnest money.

In most of the buyer initiated litigation the contention is that the seller either 1) never consummated the contract by not delivering the condo by the specified date or 2) the more philosophical argument over the existence of a true financing contingency. The latter argument offers this interesting thought: If the developer was willing to accept a 14 day financing contingency more than 2 years prior to the actual delivery of the project, how did the developer in good faith expect the buyer to provide such an item when no product existed on which to appraise or make formal application? In this case, no formal financing letter could even be produced. Also under this theory, the mere existence of the financing contingency lends to the developer’s understanding that buyers are going obtain traditional financing from and bank or lender in order to secure funds for purchase. It is with this understanding that the buyer and developer both chose to move forward with the contract and now the buyer cannot obtain financing through no fault of their own.

But honestly, let’s put all of this aside for a moment and look at the entire situation. We currently live in a economic recession. Most of these buyers offered to try to work with the Bristol Development Group in good faith prior to not closing on their contracts (at least the buyers I have spoken with have done so). The West End project was completed more than a year ago and most of these contracts were resold to new buyers at that time. Why did the developer wait almost a year to file for damages? Why sue now just before they open a brand new building?

We know that earnest money is held in escrow to protect the seller in case the buyer breaches the contract. Since nothing is black and white and many scenarios can occur that can result in a breach, either party has the right to sue for actual damages (depending on the contract's verbiage) caused by the breach. The amount of the damages can differ, depending on the amount of loss. Nobody knows what that will be until the breach occurs so it may end up to be more than the amount of the earnest $. Since the same laws apply for new condos, resales, etc., here is just one example of why we have both earnest money and contracts:

Say that a seller had received a $10,000 higher offer from buyer B right after signing a contract with buyer A yet had to honor the existing CONTRACT. What if the transaction wasn't closing for 3 months so the property is off the market for 3 months but buyer A backed out a week before closing. The seller is entitled to keep the earnest money, depending on the verbiage in the contract, but now the house has been off the market for three months plus however long it takes to resell. The seller now couldn't buy a home that s/he was trying to buy and lost a job because he/she couldn't move because the buyer didn't close. The buyer's decision has caused a domino effect. If the contract states it, in this case it is the seller who has the right to sue for specific performance. Any Real Estate expert/guru should know this.

Even though the developers didn't lose a job or a home, the same laws apply to this seller. In the case of the condos, nobody could have predicted that the market would change for the worse. Perhaps a buyer decided this price was no longer in their best interests. That shouldn't matter. A contract is a legal and binding agreement and the seller may be able to keep the earnest money but the buyer still breached a contract. However, to win a case, the seller has to prove damages. The bottom line, though, would be what is decided by the courts.