In a recent Blog Article I discussed how a purchaser of real property might use the Bankruptcy Code to prevent a default under a time of the essence provision of a contract to purchase real property. In that instance the Bankruptcy Code helped the purchaser. Conversely, the provisions of the Bankruptcy Code could result in abrogation of a purchaser’s contract rights where the seller files for bankruptcy protection.
Consider the following scenario. Purchaser contracts to purchase real property, and Seller refuses to close the transaction. Because of the unique nature of real property one remedy available to a purchaser under state law is to obtain title by compelling specific performance of the contract. What happens, however, if the seller files for bankruptcy protection? That situation occurred in a recent case in which I was involved. The purchaser negotiated a favorable purchase price ($875,000) for a commercial property. For whatever reason, (perhaps realizing it had made a bad deal) the seller refused to close. The purchaser hired an attorney who commenced proceedings in state court to compel specific performance. Multiple motions for specific performance were made and denied due to infirmities in the purchaser’s papers. Nearly 5 years after the contract was signed, the purchaser’s motion for specific performance remained unresolved. Then the seller filed for bankruptcy.