Expert: Regan Shinski - 9/16/2009

Question
We have a judgement in the amount 30,000 on a rental we own but have sold on lease option.  We received a settlement letter in the amount of 22,000 which we agreed to.  They agreed to this because we were trying to sell the home.  We couldn't sell it and had to sell it more creatively.  The lien holder is now taking back the agreed settlement and says they will pursue us another way.  The settlement letter does not give a end date or consequence if we can't or don't sell it.

The property is in WA state.  Can they force us to sell even though there is a contract in place?  Should we record our settlement letter and contract against the property in order to protect the buyers and us?  

Answer
Hi Kim:

First all, anything SPECIFICALLY written in the contract and that is otherwise legal, will take precedence over anything - including what I write here.  So please understand off the top, it is very difficult for me to say for certain without seeing the documents and without knowing specific Washington law.  Please complete your own due diligence beyond this.

The fact that no end date is given does not mean it can go on indefinitely.  Courts have made determinations for what is a "reasonable" amount of time and that varies by state and case.

This comes down to a basic contracts case.  Either you broke the contract, the lien holder broke the contract, or the contract becomes null and void at which point it reverts to your original status.

OPTION 1:  If you broke the contract, the lien holder is under no obligation to accept the $22,000.  They can pursue foreclosure through normal means allowed in your state.

OPTION 2:  If the lien holder broke the agreement, you have to pursue.  The first step is you have to have actual damages.  That means attempting a closing.  If they will not close/settle at $22,000 or your closing falls through, then you have damages.  This can be legal fees, missed rent, lost proceeds from a sale, and anything else you are out as a result of them not fulfilling that agreement at $22,000.  You have no legal case to argue in a contracts case unless you have damages.

OPTION 3:  If neither party breached a specific portion of the contract if basically becomes null and void.  As stated above, most jurisdictions have adjudicated contract cases to use the term "reasonable" amount of time in a situation like you described.  In a best case scenario for you, this would cancel the contract and revert to pre-existing contracts.  I would guess that means it would go back to the $30,000 in your case.  As an analogy:  you hire a roofer to install a new roof.  The contract does not give a start or complete by date.  Roofer doesn't show up (i.e. you can't sell house).  Does that mean you have to wait 10 years for the roofer to show up?  The roofer has a "reasonable" amount of time, when specific dates are not given.  In this case, the owner of the house would be entitled to hire someone else, get any deposit back, and if they have to pay a new roofer more money, the old roofer could be liable for the difference in contract prices.  Much the same way I believe you have a reasonable amount of time to sell the house and could be liable for any damages to lien holder.  It's not the best analogy, but I hope you see the correlation.  Again, this is only if it is clear neither you or the lien holder specifically violated the contract.

I am not sure what you mean by recording the settlement letter and contract against the property.  If you give it to the county to get it in the public sales record, they probably will not accept it until title changes name - at least that's how it works where I live.  If you mean something else and if the contract benefits you - meaning you didn't violate - I would do anything you can to get it on notice where ever you can.  It could help you down the line that your belief and intention was to abide by this contract.

Good luck, I hope this helps.  It sounds like you have some state specific issues that may be borderline - meaning court may have to make a determination.  I think you should get a real estate attorney if the lien holder holds firm on the $30,000.

Regan