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How to Settle Purchase and Sale Disputes: An Interview with Michael Resko

By Michael Resko

Tell us a little bit about your firm and the areas of law that you practice.

I founded my firm almost 20 years ago. Most of our clients have long-standing relationships with the firm. We specialize in residential and commercial real estate transactions, business transactions, and asset protection/estate planning. We also handle select real estate and business litigation matters.

We have offices in Manhattan, Garden City and Westchester County, and we are also licensed to practice in New Jersey.

What are the most common purchase and sale disputes that you've handled for people in the New York tri-state area?

Fortunately, most real estate transactions proceed smoothly and do not feature many disputes. Most parties act in good faith and disputes generally arise not because either party did anything wrong but usually because circumstances change or either or both sides have incorrect or incomplete information.

For example, let's say we have a buyer who needs a mortgage to purchase the property and for whatever reason,not the buyer's fault,the mortgage lender refuses to honor the loan commitment and won't fund the loan/close the purchase.

Or let's say the seller built a deck 20 years ago and never got the necessary permits or certificate of occupancy from the town. Or maybe there is an open work permit that was never closed.

Another common area of dispute ,that often are caused by situations like the two examples I just gave,is a delay in the closing.

The best way to deal with these issues is to avoid them. We do that by (1) doing our due diligence and identifying as many actual or potential issues as possible before we sign the contract; (2) negotiate and draft the contract to address the actual issues and most likely contingencies we've identified; and (3) to educate our clients so that their understanding and expectations are in-line with reality.

Can you explain what a breach of contract in a home purchase/sale is?

Sure. Breaches of contract typically fall into two (2) general categories-(1) failure to perform; and (2) a misrepresentation of fact.

Generally, once the contract is signed by all parties and the buyer gives the contract down-payment to the seller (to be held in escrow by the seller's attorney) the parties are obligated to close the deal and if either side does not close they are in breach/default.

The closing may also be contingent on certain conditions being satisfied. The most common is a financing contingency; e.g. the buyer does not have to close unless they get a mortgage. There are deadlines for the buyer to apply for a mortgage and get a mortgage and if the buyer misses these deadlines they can waive the contingencies.

The other type of breach is when one party makes a misrepresentation in the contract. The contract contains certain factual statements called representations that the other party relies on when they sign the contract. Most of the representations are facts about the property being sold or the parties themselves and, if it turns out the facts are incorrect then the party who made the representation may be in breach of contract.

Again, most real estate transactions do not involve a breach of contract and close. However, it is not uncommon for there to be "bumps" in the road to closing and that is why it is important to have an experienced attorney who knows real estate law to get you over those "bumps".

What are the basic legal steps involved in these types of disputes?

If the dispute arises before the closing, then the parties have to decide if they are still able to close and if they still want to close. Sometime the parties can negotiate some credit or adjustment in the purchase price in order to "save" the closing.

If the dispute is a breach of contract because one of the parties will not or cannot close, then typically the other side would have to demand a "time of the essence" closing date ,basically a "final" deadline. If the other side doesn't close on that date then they are in breach of contract. If the seller defaults, then the buyer can sue for specific performance ,that means a court can force the seller to sell the property to the buyer. If the buyer defaults, then the seller can keep the contract down-payment.

If the dispute comes up at the closing ,for example, during the final walkthrough inspection of the property the buyer discovers that the refrigerator doesn't work, then the issue will be discussed and resolved at the closing table, usually with an adjustment/credit in the purchase price or with some money held in escrow to repair or correct the problem.

Both parties need to understand that most disputes do not survive the closing. There is a rule in real estate law called the merger doctrine. This rule says that whatever representations and promises there are in the contract are "merged" into the Deed once the deal closes. This means that once the buyer accepts the Deed from the seller at closing, it is like an acknowledgement that both sides have fully performed under the contract. So if there are certain representations or promises that are important to either side, they should be stated in the contract that they will "survive the closing".

Is there anything a buyer or seller can do prior to the purchase and sale agreement to help avoid a dispute?

There are several things. First, get as much information as possible about the property. We refer to the process of gathering information as "due diligence". If the parties can identify actual and potential issues beforehand, then those issues can be dealt with in the contract or the parties can decide to walk away from the deal.

Second, make sure every issue you are concerned with and all the things that are important to you are dealt with in the contract. If the contract is silent on an issue, then you generally cannot raise that issue if a dispute arises later on. If you ask for something to be included in the contract and the other side says "no", then you can make a decision whether or not to go forward with the deal.

Third, be realistic with your demands/expectations. It takes time to get from contract to closing and delays, both short and long,are not uncommon. If you are not buying a new construction, understand that walls will need to be painted and floors may need to re-finished, etc. Most places are sold "as is" with all defects and defaults that exist when you first saw the place.

Fourth and finally, work with experienced, reliable professionals whom you trust. Brokers, home inspectors, mortgage lenders and, most importantly, your attorney can make the difference between closing a "bumpy" deal or finding yourself in litigation over a failed transaction.

What advice would you give to homeowners who discover the seller intentionally misrepresented a major defect in their new house?

Thankfully, this is an extremely rare situation, for a few reasons. First, there is a law in the State of New York that requires a seller to give a buyer a Real Property Disclosure Statement or a $500 credit at closing.

Second, I advise all of my clients buying a house to have an inspection done by a qualified, reputable engineer or home inspection firm. This inspection is done before the contract is signed and will usually reveal any "major" defect.

However, if this situation does arise, we would need to analyze the nature of the defect and the contract representations. There may be a statute or local regulation that governs the specific defect, especially if the defect involves a dangerous condition (like an environmental issue). Or, although less likely, there may be a specific representation in the contract regarding the defect.

If the seller is the builder and the home is a new construction, there may be express or implied warranties that "cover" the defect.

These types of cases are very difficult for buyers to win. "Caveat emptor", "let the buyer beware", still governs most aspects of a real estate transaction. That is why it is important to be proactive and address these kinds of situations when negotiating the contract.

What's the best way for people to reach you and your firm?

Please visit our website www.reskolawoffice.com for more information about our firm, client reviews, etc. You can submit questions or request a consultation through the website or you can call us at (212) 490-3010 or (914) 358-0045.

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