What does a liquidated damages clause in a purchase and sale agreement cover?

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What does a liquidated damages clause in a purchase and sale agreement cover?

I recently put a house under contract and was approved for financing within the due diligence period. However, the underwriter denied my loan 2 weeks prior to the closing date. My agent submitted a contract termination letter and the seller representative signed off agreeing to return my earnest money in full. Now, the seller’s representative is requesting that I pay $240 for the re-keying of the Fannie Mae home; they stated their request falls under the “liquidated damage” clause. I am refusing to pay and requested for an itemized bill of the charges. The seller agreed to pay all closing costs. What are my rights?

Asked on July 28, 2010 under Real Estate Law, Georgia

Answers:

B. B., Member, New Jersey Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

Your rights depend on exactly what your agreement says.  If your agent isn't sure, it's time to have a lawyer read the papers.  I think you were right to refuse payment, here, and I'm not sure even an itemized statement changes anything, because this has nothing to do with "liquidated damages" clauses.

What a "liquidated damages" clause actually does, is set a specific amount of money as the damages one party has to pay to the other, if they breach the contract.  Typically, in a real estate contract, the liquidated damages clause says the seller gets to keep the buyer's deposit, if the buyer breaches.

First, I'm not at all sure you were in breach, and have no way to be any more sure without the document.  Second, many courts limit the use of these clauses, so that they aren't always enforceable.


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