Differences Between Default and Breach of Contract in Real Estate Cases

Legal contracts are not just something to carry out if you feel like it. There are important legal consequences that may follow if someone breaches their agreement or defaults on it. What exactly is a default vs. a breach of contract when it comes to real estate?

Anthony Law Group practices contract law as well as business and real estate litigation. We are here to break down what it means to breach or default on a real estate contract. If you’d like a Phoenix breach of contract attorney to assist with your case, don’t hesitate to contact our firm.

Common Contract Law Terms Defined

Many people use the words “breach” and “default” interchangeably, but they have distinct meanings related to one’s legal or contractual duty. How do legal professionals define these terms?

• Breach: Defined as one party’s failure to perform any of their obligations listed in the contract’s terms.
• Default: A contract’s language usually outlines what constitutes a default, such as failing to provide payments or meeting deadlines.

Understanding a default vs. breach of contract is vital for anyone with contractual obligations. If either occurs, disputes could arise, and you may need to explore some legal remedies with the help of a contract lawyer.

What Is Considered to be a Contract Breach in Real Estate Cases?

A contract violation or breach may occur after multiple parties agree on their legal obligations. In real estate, any party could fail to uphold their official duty, including buyers and sellers.

Breaches typically revolve around a specific performance or non-performance. For example, say a seller agrees to leave all of the appliances and fixtures in their house for the buyer. If they remove the equipment, they will have broken a contractual duty with this specific performance.

On the other hand, perhaps the seller agrees to repair a leaky pipe in order for the sale to go through. Not performing this obligation may lead to a dispute between the two parties.

Sellers are not the only ones who can break contractual terms. Buyers could also be the breaching party by:

• Not showing up to the closing
• Backing out of the sale with an invalid contingency
• Failing to provide a requested pre-approval notice

Defining Default in Real Estate Contracts

Similar to any of the breaches mentioned above, default provisions center around whether someone performs obligations listed in a real estate agreement. However, one of the biggest differences between a default and a breach of contract in real estate is that the former often has to do with financial obligations or meeting deadlines.

Suppose you are buying a home and the contract clearly outlines that you will need to apply for financing. Under these terms, you are expected to go through the process in good faith, but you fail to do so. Your inaction could ultimately lead to a default and potentially subject you to various penalties.

Many buyers provide an earnest deposit to sellers who accept their offer. If your contract includes a specific timeline to provide this deposit and you miss the deadline, the future of the agreement may come into question.

Understanding Common Types of Contractual Issues

Buyers, sellers, or other parties involved in real estate contracts could run into breach or default issues. The following issues could present unique consequences and may even prompt the aggrieved party to take legal action.

Non-Material Breach

A non-material breach is typically a minor issue, though it can complicate contractual agreements. While it may not constitute recklessness on the part of the breaching party, it still goes against the contract’s terms. An example would be a buyer who is one day late in giving their earnest money deposit to the seller.

Even if disputes arise in these instances, corrected non-material breaches may not be serious enough to impact the agreement.

Material Breach

This is considered a serious breach of one’s contract obligations, such as failing to deposit earnest money or never showing up to close the sale. The non-breaching party typically has a right to contract termination and may even seek damages from the liable party.

Default Through Willful Misconduct

Willful misconduct refers to intentional and voluntary actions that violate contract law. If someone makes a conscious choice not to perform a certain obligation as defined in their agreement, they could face harsh consequences.

Willful misconduct disputes are usually more prevalent in tort cases than in real estate law. However, an attorney reviewing your case may consider this legal concept and whether one party exhibited willful misconduct.

What Happens When a Real Estate Contract Breaches or Defaults?

It does not matter if you experience a default vs. breach of contract when navigating a real estate transaction. It is possible to seek remedies as the non-breaching party. Potential options include:

• Termination: The other party’s failure to perform may grant you the right to terminate the agreement.
• Seeking compensation: Earnest money deposits may be treated as liquidated damages. If the buyer breaks the contract, the seller may be able to keep these funds if the sale falls through. Buyers could also receive a refund if the seller defaults.
• Pursuing legal action: In an attempt to settle disputes, you could file a claim in court. These cases may lead to arbitration and allow you to seek additional monetary damages, though financial compensation is never a certain outcome.

Contact a lawyer if you believe someone intended to break their contract terms. Contract law can be complex, so discuss your case with a qualified professional and learn about your options.

Consult an Experienced Real Estate Attorney

Understanding the nuances of a default vs. breach of contract is critical for anyone entering into a real estate agreement. If you need help figuring out what to do after a contract breach or have questions about a contract’s liability clause, reach out to Anthony Law Group.

Founding attorney Stephen J. Anthony has over 25 years of experience practicing both real estate and contract law. Are you ready to seek legal representation? Submit our online form or call (602) 362-2396 to schedule a consultation.