If a seller signed a purchase agreement and now refuses to close, you have three main buyer remedies when a seller breaches a purchase agreement: rescind the contract and recover your earnest money and costs, sue for monetary damages to cover what the breach cost you, or ask a court for specific performance, which is an order forcing the seller to transfer the property at the agreed price. These remedies are generally mutually exclusive, so the practical question isn’t just whether you have a claim. It’s which one to pick, and how fast you need to move to protect it.
Put the Seller on Written Notice First
Before you file anything, read the default and remedies section of your contract. Most standard residential purchase agreements require the non-breaching party to send written notice identifying the problem and giving the other side a window to cure it. Cure periods commonly run between ten and thirty days. Skip that step when the contract requires it and a court can throw out your claim for jumping the gun.
Even when no cure period is spelled out, written notice is worth sending. It fixes the date of default in writing, which is the date your damages are measured from and the date the statute of limitations starts running. Send it by certified mail or another method that generates proof of delivery. If the seller ignores it, you’re clean to move on the remedy you’ve chosen.
Rescission: Walk Away and Get Your Money Back
Rescission treats the contract as if it never existed. The point is to put you back where you were financially before you signed. The most immediate piece is your earnest money deposit, typically one to three percent of the purchase price, sitting in escrow.
Getting it released isn’t automatic. Most escrow agents will not disburse the deposit without a signed release from both sides. When the seller refuses to sign, the escrow holder can file an interpleader action, depositing the funds with the court and asking to be dismissed from the fight. You and the seller then litigate who gets the money, and the escrow agent’s legal fees usually come out of the deposit itself. Delay costs you even when you’re right.
Some contracts include a liquidated damages clause that fixes a dollar amount the seller owes on top of returning the deposit if they default. Rescission is the cleanest path for a buyer who would rather find another house than spend a year in court.
Monetary Damages: Loss of Bargain Plus Costs
The core measure of damages when a seller breaches is the difference between your contract price and the property’s fair market value on the date of the breach. A $400,000 contract on a house worth $450,000 when the seller walked gives you $50,000 in loss-of-bargain damages. Courts determine fair market value from recent comparable sales, appraisals, and sometimes expert testimony. A minority of states cut this off and limit a good-faith seller to out-of-pocket reimbursement only, but most apply the full loss-of-bargain measure regardless of intent.
On top of the bargain loss, you can recover the specific expenses you spent in reliance on the deal: the home inspection, the lender’s appraisal, the title search, non-refundable loan application or commitment fees, and any required survey. If you had sold your prior home expecting to close, temporary housing, moving, and storage costs can qualify as consequential damages. Each item has to flow directly from the breach and have been reasonably foreseeable to the seller when the contract was signed. Keep every receipt from the day you went under contract.
You Have to Mitigate
Courts expect you to take reasonable steps to limit your losses. You can’t sit for a year, watch the market climb, and then claim the full gap between your old contract price and today’s value. If a comparable home was available at or near your price shortly after the breach, a court can reduce what you recover to reflect what you could have bought with reasonable effort. Mitigation doesn’t mean settling for a bad house. It means continuing to look, keeping your financing active, and not running up avoidable costs. Document the search.
Specific Performance: Force the Sale
Every parcel of real estate is treated as legally unique, which is why courts will order specific performance in real estate cases when they rarely will in other contract disputes. A successful claim ends with a court order directing the seller to execute the deed and convey title at the original contract price.
Three elements have to line up. The contract terms must be clear and definite. You must have performed your side of the deal or been ready to. And money damages must be inadequate to make you whole. The “ready, willing, and able” element is where cases most often fall apart. You’ll need to show you had financing in place, either a firm mortgage commitment or liquid funds. If your loan approval had already expired or you couldn’t have closed on time yourself, a judge is unlikely to force the seller to.
Record a Lis Pendens Immediately
When you’re pursuing specific performance, the single most important protective move is recording a lis pendens in the land records of the county where the property sits. It’s a public notice that the property is tied up in pending litigation. Any prospective buyer who runs a title search will see it, and almost no title company will insure around it. The practical effect is that the seller cannot quietly sell to someone else while your case moves through court. Recording fees are typically under $100. In most jurisdictions, recording a lis pendens is specifically exempted from any contractual mediation requirement, so you don’t have to wait.
When a Court Will Refuse
Specific performance is an equitable remedy, meaning the judge weighs fairness. A court can deny it even when the elements are met. Waiting too long after learning of the breach can trigger a laches defense. Misleading or unfair conduct during the transaction brings in unclean hands. If the seller can show enforcement would cause severe hardship far out of proportion to your benefit, that can also tip the result.
Choosing Among the Three
Rescission says the contract never existed. A damages claim says the contract existed and the seller owes you for breaking it. Specific performance asks the court to enforce the contract rather than undo it. Courts treat these as fundamentally inconsistent, so you generally cannot pursue them in combination, and switching midstream complicates your case and can hurt your credibility with the judge.
The practical factors usually drive the choice. If the property has appreciated well above your contract price, damages or specific performance will put more value in your hands. If comparable homes are easy to find and you just want to be made whole on your costs, rescission is faster and cleaner. If this specific house is what you want and the seller still owns it, specific performance plus a lis pendens is the aggressive play.
Deadlines That Can End Your Claim
Every state sets a statute of limitations on breach-of-contract suits. For written contracts like a purchase agreement, the window typically falls between three and six years from the date of the breach, with a few states running longer or shorter. The clock usually starts when the breach occurs, not when you discover it.
The contract itself can impose a much tighter deadline. Some purchase agreements require any specific performance action to be filed within 30 to 60 days of default, and missing that window waives the remedy. These contractual deadlines override the longer state statute when they’re enforceable. Read the default and remedies section with that in mind, and don’t let months slip by even if you’re technically still within time.
Mediation and Arbitration Clauses
Many residential purchase agreements require the parties to mediate before filing suit or demanding arbitration. Mediation uses a neutral third party to try to broker a voluntary settlement. The cost is usually split and runs from several hundred to a couple thousand dollars per session depending on the mediator.
The penalty for skipping required mediation is concrete. If your contract has a prevailing-party attorney fee provision, bypassing mediation can disqualify you from recovering those fees even if you win on the merits. In real estate litigation that can mean leaving tens of thousands of dollars on the table. Courts have recognized narrow exceptions, mainly where immediate suit is needed to preserve a statute of limitations or to record a lis pendens.
If mediation fails, some contracts send the dispute to binding arbitration instead of court. An arbitrator’s decision carries the same legal force as a judgment, usually comes faster and cheaper than full litigation, and leaves you with very limited appeal rights. Read the dispute resolution section before you sign. Agreeing to arbitration waives your right to a jury trial.
What It Costs to Pursue
Court filing fees for a civil breach-of-contract case run roughly $50 to $400 depending on jurisdiction and amount in dispute. Process servers typically charge $30 to $225 to deliver the lawsuit. Recording a lis pendens is a smaller fee on top. Attorney costs are the big variable: a straightforward case that settles quickly might run a few thousand dollars, while a case that goes to trial can reach $25,000 or more.
A prevailing-party attorney fee clause cuts both ways. If you sue and lose, you pay the seller’s legal bills too. Before you commit, weigh your evidence, the dollars at stake, and whether the seller can actually pay a judgment. A seller who breached because they’re in financial trouble may not have the money to satisfy one even if you win cleanly.
Tax Treatment of What You Recover
Getting your earnest money deposit back isn’t a taxable event, because you’re receiving a return of your own funds. Any interest the deposit earned in escrow is taxable to you as income, since the buyer is responsible for reporting income on a pre-closing escrow account.1GovInfo. 26 CFR 1.468B-9 – Rules for Escrow Accounts, Settlement Funds, and Similar Funds
Damages are different. The IRS looks at the facts, circumstances, and language of a settlement to determine what the payment was intended to replace.2Internal Revenue Service. Tax Implications of Settlements and Judgments Loss-of-bargain damages generally count as taxable income because they represent economic gain you didn’t have before. Reimbursement of out-of-pocket expenses like the inspection and appraisal typically isn’t taxable because it only restores you to zero. If a settlement agreement doesn’t allocate the money between categories, the IRS may treat the entire payment as taxable. Ask your attorney to break the settlement out explicitly, and run the numbers past a tax professional before you file.