NOT ALL BUYERS CAN SUSTAIN AN ACTION FOR SPECIFIC PERFORMANCE.. READ ON..

NOT ALL BUYERS CAN SUSTAIN AN ACTION FOR SPECIFIC PERFORMANCE.......

This market place over the last couple of years has caused we attorneys more occasions talking with buyers who enter into Purchase and Sale Agreements only to find that the seller refuses to perform or walks away from the transaction all together.

This topic of discussion is a perennial favorite now on “Legal-Line” as the questions about this topic are now a weekly occurrence. I am not going to focus on questions from Brokers such as yourselves, but to go through a case that our office handled recently that is spot on and best illustrates how actions for specific performance operate in the State of Washington.

MANY ARE CALLED, BUT FEW ARE CHOSEN ABOUT ACTIONS FOR SPECIFIC PERFORMANCE

I would suspect that we have about 12-15 consultations a month among our attorney group on this matter of actions for specific performance of real estate purchase agreement by purchasers.

Of that group, about 6-7 will have cases that can sustain a legal challenge or, in other words, may be worth pursuing a lawsuit for specific performance.

Of that second group of 6-7 only about one buyer will opt to hire us and move forward into litigation.  Why?

Actions like this cost money. Most buyers are not willing to invest even though they may have a strong case.

THE KING COUNTY BUILDER WHO WOULDN’T GO TO CLOSING AND RESCINDED

Let’s look at a case that we took on in King County. Our client was a married couple who had enough cash to purchase a $500,000.00 property. They were purchasing new construction from a builder who was slow in moving the construction project to completion and closing.

All during the long period from the fixed price contract formation date to the proposed sale closing date, the seller was being offered as much as $670,000.00 for the completed project.

The opportunity was just too good to pass up for the seller. The seller informed the purchaser that they were rescinding the transaction. Reason? They had decided not to sell the property at all. They were going to just move into the property. At least that was their story line at that time.

THE BUYERS CONSULTED WITH OUR OFFICE

Our first analysis, of course, was whether the contract on its face was specifically enforceable?

*****Did it have all the necessary formal requirements such as legal description?

*****Was it clear or were there ambiguities in the contract?

*****Were their contingencies which may have precluded the agreement from being specifically enforceable?

You see, for us to proceed to make a successful specific performance claim, we must have our legal ducks all in a perfect row. This is where we send half of the people that consult with us out the door. Their agreement won’t meet the standard. What standard are we talking about? The standard of proof required to allow our case to move forward with the judge.

YOU SEE, WE MUST PROVE TO THE JUDGE “CLEAR, COGENT AND CONVINCING EVIDENCE”

Now that is a mouthful as well as an extremely high standard or level of proof.

*****A typical lawsuit requires proof or evidence that is “a preponderance of the evidence or more likely than not”. 

*****Criminal proof is “beyond a reasonable doubt”.

*****“Clear, cogent and convincing evidence is just a shade under reasonable doubt and is the level of proof or evidence required in a successful specific performance action.

In short, we must have our contract perfect to have a chance. Most contracts are not perfect. Our buyer in this case had some ambiguities that could possibly have gotten in our way, but in our legal opinion they were not fatal ambiguities.

WE MOVED FORWARD AND SUED THE SELLER USING OUR SECRET WEAPON………ONE OF TWO SECRET WEAPONS

A specific performance lawsuit is just like every other lawsuit. It has a Summons and a Complaint and is filed with the Superior Court and served on the defendant seller. However, in that case along with the lawsuit we had a secret weapon that could bring down the seller to their knees. What is that?  It is called a lis pendens!!

We quickly discovered that our seller really didn’t want to move into their sale property. They REALLY wanted to get rid of our client’s low offer and replace that with a new higher offer from a new buyer. We really knew that.

Along with our court documents, we filed with the court AND RECORDED in that county a handy dandy document called a “Lis Pendens” which provides notice to the whole world (and particularly all the title companies in that county) that a law suit against the sellers is pending affecting title to the subject property. [The key ingredient is that we affect title. Below in this update we look at a case where the court found the plaintiff lacked authority to file a lis pendens].

NO title company will insure a sale to anybody except our buyer without the lis pendens being released. It is a very powerful legal document and literally holds the title to the property in abeyance until the lawsuit settles. In our case it put a strangle hold on the seller precluding them from seller to another buyer until our lawsuit ran its course.

OH, DID I MENTION WE HAVE ONE MORE SECRET WEAPON? YOU!!!!   WELL YOUR BROKERAGE….

Your Listing Agreement with the seller is our second secret weapon. We ask your brokerage, in conjunction with our legal proceedings, to nicely inform the seller that the Brokers have already done your jobs by bringing forward a “ready, willing and able purchaser of the property” and that the seller is obligated still to pay a full commission. They are many times surprised as many believe that there is no obligation if no closing, but such is not the case. That really gets the sellers’ attention.

THE RESULT OF OUR LEGAL ACTION?

We filed and served. We recorded and filed our lis pendens. The brokerage sent their demand letter. And then we waited. Under the law, the seller had to do something within twenty (20) days of service of the action.

The seller consulted legal counsel and quickly with the help of counsel decided it was in their best interest to sell

as they did not have a viable defense to our legal claim for specific performance.  

While we never had a trial or any hearings, we could negotiate concessions to cover some of the attorney fees and costs our client incurred. Our client went to closing and purchased the property despite sellers’ anticipatory repudiation of the enforceable contract.

PRACTICE POINTER: If you are involved in a potential action for specific performance keep in mind that timing is most important. It is also incumbent that the buyer attempts to perform and present themselves at escrow showing that they were “ready, willing and able purchasers”. It is important that your buyers retain competent counsel immediately as prompt action is important.

LIS PENDENS ARE DANGEROUS DOCUMENTS WHEN NOT USED FOR THE PROPER PURPOSE

When selling real estate, agents work together with title companies to deliver “clear title” from a seller to a buyer. It is best practice to obtain a title commitment before listing to determine the state of title and whether there are any obstacles to closing.

Obstacles may include a missing deed, lien, or other instrument encumbering the property.

Additionally, when the seller is involved in ongoing litigation, there may be a “lis pendens” recorded against the property preventing it from being sold with clear title. However, as illustrated by a recent Court of Appeals decision, not every lawsuit entitles the plaintiff to record a lis pendens against real property. [In all cases of specific performance, we generally have the authority to do so as we are affecting title or ownership].

In McCarthy v. DeFord, 195 Wn. App. 1050 (2016), Division II of the Court of Appeals (right here in Tacoma) addressed whether a lis pendens recorded against a property after a lawsuit was filed was appropriate.

*****In 2010, McCarthy, DeFord, and Copenhaver entered into a business venture seeking to develop real estate. In doing so, the formed separate corporate entities including West Park which was owned by Copenhaver and DeFord.

*****In 2011, the business partners’ relationship began to sour as McCarthy believed the other two (2) partners were withholding information from him regarding new development opportunities.

*****In 2012, McCarthy commenced a lawsuit against the other partners alleging that DeFord and Copenhaver breached certain agreement and fiduciary obligations. Meanwhile. DeFord and Copenhaver purchased a certain real property through West Park.

*****After learning of West Park’s acquisition of that certain real property, McCarthy amended his complaint including West Park as a Defendant and alleging West Park had wrongfully acquired that property as part of DeFord and Copenhaver’s alleged unlawful conduct.

*****McCarthy argued that because of the Defendants’ misconduct, he was entitled to a constructive trust and/or quiet title in the property.

*****McCarthy then recorded a lis pendens against the property which prevented West Park from selling or otherwise encumbering the property.

RULING AT THE TRIAL COURT LEVEL

At the trial court, West Park filed a motion to cancel the lis pendens arguing that the lis pendens did not involve an action affecting title to real property despite McCarthy’s request for quiet title. The trial court ruled in West Park’s favor and McCarthy appealed.

RULING AT THE COURT OF APPEALS LEVEL

The Court of Appeals affirmed the trial court ruling holding that McCarthy’s lawsuit did not affect the title to real property to enable the recording of a lis pendens as required by RCW 4.28.320.

The Court of Appeals relied on RCW 7.28.010 which states to have standing to bring a quiet title cause of action, the plaintiff must claim some interest in the subject real property.

The Court of Appeals rejected McCarthy’s argument that his lawsuit affected title to the subject property because it was undisputed that West Park was the owner of the subject property, McCarthy did not contribute any monies to the purchase of the subject property, and McCarthy’s claims against his former partners were for damages rather than any claim which would impact West Park’s ownership interest to the subject property.

After affirming the trial court decision, the Court of Appeals affirmed the trial court award of attorney fees against McCarthy personally and awarded West Park additional attorney fees on appeal.

PRACTICE POINTER: The practice pointer illustrated in this case is to get the title commitment early. Instruments, or even lis pendens, recorded against a property may be unlawful and a real estate attorney may be able to overcome these obstacles to “clear title” in a cost-effective fashion. In any event, it is always best to involve an attorney to solve any title problem early in the process before closing deadlines come into play. 

SOME 2018 THOUGHTS ON SHORT SALES ……. WE ARE STILL IN THAT BUSINESS

During the years of the Recession a big chuck of our practice was involved with distressed homeowners particularly assisting them in negotiating short sales with the various banks around the county and assisting Brokers in that endeavor as well. 

As the laws were changing rapidly, we have many updates in that area of practice and offered live classes throughout the state of Washington on matters of “short sales”.  At our peak in 2010 and 2011, we had 37 employees exclusively involved in matters of short sales. At our peak, we were having an average of 455 client consultations each month. Thank goodness, those days are gone.

OUR SHORT SALE NEGOTIATING DEPARTMENT IS STILL OPEN THROUGH 2018

We are still engaged in negotiating short sales. Our short sale department certainly isn’t as large as it was, but we still have employees exclusively negotiating short sales throughout Washington state.  Our process is still the same. We handle these matters on a contingency fee basis and we only get paid if the short sale successfully closes.

Brokers out there are still running into short sales particularly in the areas outside the metropolitan core areas. We still don’t charge to talk to Brokers about short sales and we welcome your call. Jessica Richards is the manager of our short sale department and has years and years of short sale negotiating experience. She can be reached at 253 284 9743 or Jrichards@mcferranlaw.com  You will like Jessica; she really knows her stuff.

………OR CONTACT KEVIN HUMMEL, OUR ASSOCIATE, EXCLUSIVELY FOR OUR BROKER PARTNERS

Most Brokers throughout Washington know Kevin Hummel as he has been a fixture at our law office for as many years. He is our representative out in the Real Estate Broker field in Western Washington and is a wealth of information on law matters and everything that we do in our law practice.

He is available like all our attorneys: 24 hours a day/7 days a week. He will always welcome your call or email and can help and assist or get you in contact with the attorney best suited to help and assist you or your customer in their matter. His phone number is 253-882-9199. His email is: Kevin@mcferranlaw.com. By the way, he really knows short sales as he was our original manager of the department. I can’t say enough good things about Kevin.