Contract and Real Estate Litigation

Enforcement of Real Estate Contracts

Real estate is the most expensive purchase that most people ever make. Making an impulsive decision to sell or buy is therefore enormously costly. Unless the other party agrees to tear up the contract, the party regretting the decision may find himself stuck. In a seller’s market, buyers have to be careful not to be caught up in the frenzy to enter into an agreement immediately upon viewing the property. The necessity of exercising caution is even more important at an auction, where decisions have to be made in a split second, and auction fever can cause an otherwise disciplined person to forget her firm resolve not to bid more than a certain amount. An auction bid, once accepted, is a binding contract, even if the successful bidder refuses to execute a written memorandum of the contract.  Whether rushed or considered, a written contract to buy real estate can usually be specifically enforced by either party, meaning that a court order can require the breaching party to sell or buy the property. In the alternative, damages for breaching a real estate contract are often extensive.

Under Maryland law, a contract to buy or sell real estate must be in writing to be enforceable. It need not be notarized. The typical residential contract contains various contingencies that must be met before the obligation to complete the sale is final. Commonly found contingencies include the buyer being satisfied with the results of a home inspection, the buyer’s obtaining financing, and the buyer’s selling his or her present home. The time limits associated with the contingencies can be strictly enforced, unless the other party waives them. A waiver should be obtained in writing.

When all contingencies have been satisfied, the obligation to settle on the property becomes fixed. If the seller seeks to avoid settlement, perhaps because he expects a better offer to come through, or the buyer has remorse and attempts to walk away from the deal, the non-breaching party may choose to seek money damages for the losses cause by the breach. For example, a seller may declare the deposit forfeited and, if he is unable to sell for the same price, seek the difference in sales price and associated damages. Similarly, a buyer may have suffered damages from reliance on the availability of the property, the costs of applying for a loan, and similar costs.

The law also presumes that all real estate is unique, however, and permits a party to sue for specific performance. These cases are expedited proceedings. Unless the contract is itself defective, or the breaching party can prove that the plaintiff was not ready to convey or was otherwise in breach of the agreement, a contract can be enforced by a court order to complete the purchase as detailed in the contract. Although buyers are more likely to seek this remedy when a seller reneges on the promise to convey a particular piece of land or building, this remedy is also available to a seller. A court order to convey land can be enforced by contempt proceedings, if necessary.

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Are late fees illegal?

In response to the decision in TCI Cable, explained on this site since it was released last summer, the Maryland General Assembly acted to permit imposition of late fees in a broader array of circumstances. The new law, effective on June 1, resolves retroactively the issue of how much can be charged for late contract payments.

In the TCI case, the Court of Appeals decided that, unless some specific statute permitted late charges, the damages for late payment of an installment due under an agreement could not exceed the constitutional limit of 6% per year. TCI had been charging cable TV customers a fee of $5 per month as a late payment fee, regardless of how much the customer owed, or how late the payment was. The monthly payment amounts could be lower than $20 per month, depending upon the service provided.

The business community reacted with shock at the decision, and sprang into action. Service charges of 1 1/2% per month are common in consumer and commercial transactions alike, and their validity had not been seriously questioned prior to the cable users’ class action. There was almost no doubt that the Legislature would respond to the decision; the debate centered on the appropriate maximum late fee, given the impetus from the original lawsuit, which alleged that disproportionately high late fees took undue advantage of consumers. In the case of cable TV, moreover, there are often no competitive companies providing an alternative service.

The new law adds section 14-1315 to the Commercial Law Article. The maximum late fee for consumer contracts is now $5, or 10% of the past due payment, whichever is greater. No more than three late fees may be charged for any one past due payment, regardless of how long it remains overdue. The new law requires all contracts, including commercial agreements, to disclose the amounts, timing, and conditions for imposition of late fees.

The Act affects late fees imposed after November 4, 1995. Since final judgment was rendered in the TCI case, however, the new law does not relieve the company of its obligation to repay consumers. Funds not claimed by consumers in that case will be paid to the City of Baltimore.

United Cable Television of Baltimore Limited Partnership v. Louis Burch et al., No. 82, September Term, 1998 (decided June 8, 1999).

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