Asked in Bankruptcy and Real Estate Law for Oregon

Q: As a buyer can I be sued by a seller (in bankruptcy and already has court approval to sell home) if I breech contract?

Tried to back out of contract but bankruptcy lawyer is threatening I will be sued by sellers or bankruptcy court if I don’t follow through with sale. Bankruptcy was never disclosed to us in purchase and sale agreement (only in addendum stating “sale of home contingent on court approval”) the lawyer is stating they will sue for specific performance and damages to seller for breaching contract. Could I be sued for 20k+

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2 Lawyer Answers
Joanne Reisman
Joanne Reisman
  • Bankruptcy Lawyer
  • Portland, OR
  • Licensed in Oregon

A: This is a complex situation which really requires a lawyer to know all the facts and review all the documents before they can advise you. All I can tell you is that the Bankruptcy Lawyer is motivated to get top dollar for their client. They need to sell the house for more than is owed on the house so their client realizes the excess which is protected by the property exemption they claimed when they filed bankruptcy.

On the other had if the sale falls through the Bankruptcy Trustees might want to rush the sale of a house and not necessarily get top dollar which means the client of the bankruptcy Attorney gets less or no exempt money. So the story you are getting from the debtor's Attorney is likely biased.

Can you be sued for breaching a sales contract - yes in theory. The Bankruptcy Trustee now controls the property in the Debtor's estate so they also have the right to sue on the contract which is part of the Debtor's Estate. I honestly don't know how likely this is to happen.

Generally speaking Bankruptcy Trustees's just want to get in and get out with as much money as they can realize for their fees or commissions for doing the liquidation. It might also be possible for the Debtor to sue you if the Trustee isn't interested and the Trustee agrees they can go ahead with this.

I guess the real question is why are you backing out of the sale?

Also, where did you get the idea that you would be sued for $20k? Understand that specific performance means getting a court to force you to complete the purchase and courts will rarely do that. Rather the property will get sold to a second buyer, probably by the Trustee. As I pointed out above, you could be sued for the difference between what you offered and what the second buyer paid if it was less than your offer. But there is a limitation even to that. The Seller has to prove that they did everything they could to mitigate what damages you are left owing. I don't see how they can do that if the Trustee grabs the property and rushes the sale.

There is also the consideration as to who is going to pay for this lawsuit against you and whether you could even pay the judgment even if they win, ie the risk and the cost.

Hard to say what will happen without an Attorney, as I initially said, learning all the facts and reviewing all the documents.

Timothy Denison
Timothy Denison
  • Bankruptcy Lawyer
  • Louisville, KY

A: The short answer is yes but you need to fully evaluate your specific situation with your lawyer.

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