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Man who walked away from home purchase hit for $155K

Market dropped between time of signing, his decision to bail

A Bedford County jury verdict last month dramatically illustrates the recent downturn in the real estate market and the potential consequences for unwary real estate purchasers.

The sellers of a high-priced home (pictured above) in a new Forest-area subdivision won a $155,000 judgment against a man who signed a contract to buy the home and later walked away from the deal.

In the six months between the contract and the buyer’s decision not to close, the real estate market had plunged. “The whole world had changed,” according to Greg Habeeb, attorney for the sellers who took the reluctant buyer to court.

The agreed-upon sales price was $650,000. By the time another willing buyer was found, the price was down to $571,000. The sellers demanded judgment for the $79,000 difference plus other expenses attributable to the 15-month delay in the sale.

Those “carrying costs” included interest, maintenance, utilities and taxes.

The reluctant buyer, Kenneth Grauer, argued that he had the right to rescind under the Virginia Property Owners’ Association Act. As Habeeb explained, Grauer contended that the sellers were required to provide a disclosure package because the development had deed restrictions, an architectural control committee and the right to assess fees for maintenance of a neighborhood lake.

The Act allows a buyer to rescind a purchase contract if the seller fails to make disclosures about a property owners’ association.

Lem Marshall, special counsel for the Virginia Association of Realtors, said the general question has arisen as to whether a property can be subject to the Act when the owner is obligated to pay fees for a common area, but there is no actual owners’ association.

Looking to the language of the Act, Marshall said that both prongs of the critical definition make reference to “the association.” Moreover, he said, the name of the act itself contains the word “association.” He concludes that the Act probably requires the existence of an association to trigger its requirements.

Judge James W. Updike Jr. apparently followed that line of reasoning. He ruled as a matter of law that the restrictions on the Bedford property were not sufficient to bring it under the Virginia act, Habeeb said. Updike drew a distinction between those restrictions and the mandatory membership and mandatory fees contemplated by the VPOAA.

Developers and other real estate professionals took note of that issue, according to Habeeb. “The judge upheld important law,” he said. “We think it would have changed the landscape of property law if he had upheld the property owners’ association argument.”

Updike also decided against Grauer on the question of whether there was a binding contract in the first place. The case then went to the jury on the issues of whether Grauer breached the contract and, if so, the extent of the sellers’ losses.

Real estate professionals rarely sue when a buyer refuses to close on a contract, according to Marshall. Habeeb said that, most of the time, there is no real loss. There are other willing buyers waiting to pay the same price for a property. Furthermore, many real estate contracts include contingencies that let a buyer off the hook if he cannot get financing or cannot sell his present home.

But in the right case, “when a buyer has the money to pay, you can go after him,” said Marshall.

The Bedford case represents a rare confluence of factors that made it worthwhile to take the case to court, according to Habeeb. The contract was for a cash sale. There were no financing clauses or contingencies of any kind.

The house was vulnerable to the quick drop in the housing market because it was built on speculation in a new development with no comparable sales in the vicinity. By the time that Grauer announced his refusal to buy the house, its value had plummeted. “This was the wrong place at the wrong time,” said Habeeb.

Also, in the interim, Grauer had requested changes to the house, including converting one bedroom to an office, which further reduced the home’s marketability.

Habeeb said that one lesson of the case is that clear and unambiguous contracts are enforceable, something real estate people like to know. Another lesson is for buyers: “If you have reservations, put a contingency clause in the contract.”
Updike’s rulings came at trial, without any written opinion.

Grauer’s attorney, Stephen Dunn of Forest, did not return a call for comment as of presstime. There is no word on whether Grauer plans to appeal.

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