Housing Counsel: Citizens Can Change Our Laws

Written by Posted On Sunday, 11 December 2005 16:00

Question: We signed a contract to purchase a "to be built" home in Prince George's County, Maryland. Seven months later, we received a letter from the builder's attorney, stating that the builder "has no legal right at this time to purchase any of the lots at this Subdivision."

We believe the contract was cancelled because the builder knew that he could sell the house at a much higher price in the then "hot market." Because of these misrepresentations -- and because interest rates are now higher than when we signed the contract -- we are now unable to afford a similar home in the same market. Additionally, we now have to forfeit a moving allowance valued at approximately $5,000 from the military, which was our retirement benefit after 20 years of service in the Marine Corps.

We complained to our County Councilman, and as a result of our testimony, the Council unanimously passed a new law that may assist future consumers. However, we still need help.

We do not have thousands of dollars to risk in a lawsuit, but would like to know if we even have a basis for a suit. Can we sue for "specific performance"?

Answer: First, let's look at the new law which the Council enacted. Effective August 8, 2005, all real estate contracts for property located in Prince George's County, Maryland, where the seller does not hold record title at the time the contract is signed, must have a bold disclosure notice. In bold letters (no smaller than the largest contract page) the seller must state:

PLEASE TAKE NOTICE that the Seller of the Property in this Contract Does Not Presently Hold Title to the Property, in the Land Records of Prince George's County.

IF THE SELLER of the Property Does Not Presently Hold Title, this Contract May be Rescinded by the Purchaser, Made Void and of No Effect.

THE SELLER IS REQUIRED to Inform the Purchaser at the Time the Contract is Signed, that the Seller Does Not Presently Hold Title to the Property.

Violation of this law is a misdemeanor.

While this is a good first step, it clearly does not give you any guidance or any relief.

You asked if you can sue for specific performance. Unless the Seller actually owns the property now, such a lawsuit is not possible. Specific performance asks the Court to order the Seller to convey the property to the buyer.

However, you still have recourse against the Seller. You signed a contract, which did not disclose the fact that the Seller did not own the Property. The Seller can be sued for breach of contract, since obviously he is unable to perform under that contract.

Your damages, at the very least, would be the loss of your moving allowance, any additional interest which you will have to pay now for a new mortgage loan, and possibly the difference in the value between the house you were going to buy and one which you will now have to purchase.

Alternatively, since you do not want to spend a lot of dollars on legal fees, you might want to consider filing a suit in the "small claims" Court (called the "District Court"), where the jurisdictional limit on claims is $5,000. If you decide to go this route, at the very least you may recoup some of your losses.

Finally, you asked if it is legal to sell something that you do not have. The simple answer is yes. Let's look at this example. Mr. A is interested in buying lot X and plans to build a house there. A signs a contract to purchase the lot. Although A does not have legal title to the lot, he has what is called "equitable title" to the property. This means that he has the right to sign a sales contract to sell the lot to a third party, because he knows that he will be able to get title to the property before he has to sell it to that other person.

This is often referred to as a "flip." Some flips are bad, because the Seller has taken advantage of the original property owner. The seller convinces the owner to sell at a low price, and then resells the same property and makes a nice profit.

But in our example, Mr. A may have signed a contract to buy raw land at the full market price, knowing that once he builds a house on the lot, he will be able to sell it and make some money in the process. There is nothing illegal about this.

However, Mr. A. should have fully disclosed to the third party that at the time the contract was signed, he did not, in fact, have full title ownership to the property. Now, at least in Prince George's County -- as a result of your experience and your willingness to go public -- such disclosures are legally required.

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Benny L Kass

Author of the weekly Housing Counsel column with The Washington Post for nearly 30 years, Benny Kass is the senior partner with the Washington, DC law firm of KASS LEGAL GROUP, PLLC and a specialist in such real estate legal areas as commercial and residential financing, closings, foreclosures and workouts.

Mr. Kass is a Charter Member of the College of Community Association Attorneys, and has written extensively about community association issues. In addition, he is a life member of the National Conference of Commissioners on Uniform State Laws. In this capacity, he has been involved in the development of almost all of the Commission’s real estate laws, including the Uniform Common Interest Ownership Act which has been adopted in many states.

kasslegalgroup.com

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