When two parties sign a real estate purchase contract, they are committing to carrying out its terms. In a typical agreement, the seller is promising to transfer ownership of property to the buyer on a specific closing date in exchange for the buyer’s payment. However, when one of the parties fails to uphold his or her end of the bargain, there can be a material breach of the contract. If you are in this situation in Arizona, it’s crucial to know what remedies are available to you.
Arizona Breach of Contract
Generally, for a contract to be legal and enforceable, there has to be offer, acceptance, and consideration, or payment. In Arizona and in many other states, a contract can be breached when a party does not do something they have agreed to do or when one party prevents the other party from fulfilling their obligations.
Material Breach of Contract
A breach that does not allow a party to fulfill their part of a contract is considered to be a material breach. In the real estate context, a party can materially breach their agreement in numerous ways. Often, the breaching event will be something that should have happened before closing. Some examples may be when a buyer does not deposit the amount of cash required to close or when the buyer does not obtain financing before closing as agreed. Likewise, a seller may breach the contract by not completing specific repairs on the property that were a condition of the sale, or by not showing up for closing.
Possible Remedies for Material Breach
Remedies usually fall into two categories: Equitable and Monetary. A party seeking an equitable remedy is asking the court to make someone do something or refrain from a certain action. Within the real estate context, a buyer who wants to complete the sale may ask for specific performance, meaning that the court can order the seller to finish their transaction as required under the purchase contract. A seller can also ask for this remedy, but it may not be ideal when the reason for the buyer’s breach is lack of financing or because their current home hasn’t sold. In both instances, the parties will have to establish certain factors before a court can grant specific performance.
The other option is for the injured party to ask for monetary damages. The parties commonly include language in the purchase contract regarding any applicable damages when there is a breach. These may include compensatory and consequential damages. Sellers usually get to keep any earnest money the buyer paid. The buyer will ordinarily get their money back and may also be paid for additional costs (i.e., inspection fees, moving company deposit, incidental expenses, etc.). There may also be a liquidated damages clause that sets out a specific amount each party is to be paid in the event of a breach.
In the case of specific performance and monetary damages, the non-breaching party can also file a “Notice of Lis Pendens” that informs other interested buyers that the property is subject to litigation for a pending title claim. While this notice may not stop the property from being sold, it usually dissuades interested buyers who, if given another option, would pass on a property that could end up with a cloud on the title.
When your Arizona real estate contract is materially breached, it can be frustrating and complicated. Laura B. Bramnick is an experienced Arizona real estate attorney who can help you examine all aspects of your Arizona real estate contract and evaluate your options. If you are seeking an exceptional, client-driven real estate lawyer in Scottsdale, Phoenix, Sedona and throughout the State of Arizona, contact Laura B. Bramnick to schedule your consultation.