Couple Not Entitled to Damages From Difference in Short Sale Price in Contract

A couple who defaulted on their mortgage filed suit against prospective purchasers who dropped out of a short sale agreement shortly before closing. Though the couple later sold the property at a different short sale, the appellate panel determined that the $35,000 difference in the prices was a loss attributable to the bank that owned the mortgage. As such, the panel affirmed the decision of the district court regarding the calculation of damages.

Hartwell P. Morse III and Deborah B. Morse owned property commonly known as 282 Stonegate in Clarendon Hills, Illinois. The property was encumbered by two mortgages, one held by Chase Bank and the other held by PNC Bank. The Morses defaulted on both mortgages. In August 2015, the couple entered into a contract for the sale of the property to Anthony Donati and Concetta Donati for $410,000.

The contract contained a “short sale addendum” which indicated that the plaintiffs were selling the property for less than they owed on their mortgages. The sale was contingent upon the plaintiffs’ obtaining PNC bank’s consent. In September 2015, the bank consented to the sale, provided that it received all of the proceeds and that the plaintiffs received $0 at closing. The bank also agreed not to pursue a deficiency judgment against the plaintiffs.

In December 2015, the Donatis refused to close because of a dispute with their lender. A week later, the Morses filed suit against the Donatis for specific performance. In April 2016, the Morses sold the property to Susan Kolinger for $375,000, $35,000 less than the price they had agreed to with the Donatis. In July 2016, the Morses filed an amended one-count complaint against the Donatis for breach of contract. The Donatis denied that the Morses had been injured by their conduct. The trial court eventually concluded that the Morses had proven that the Donatis had breached the agreement, but the court calculated the damages at far less than had been alleged by the Morses in their complaint. The court also denied the Morses’ motion for attorney’s fees. The Morses then appealed.

The Illinois Appellate Court began by finding that the bank’s agreement to forgive the mortgage was not compensation for a loss, but rather a strictly commercial arrangement dictated by the fact that a job loss caused the plaintiffs to default on their mortgage. The panel found that the bank was protecting its own interests in agreeing to the short sale, as it received a substantial portion of the mortgage balance in short order, as opposed to having to go through a lengthy foreclosure process. The panel noted that, as the plaintiffs were required to submit all proceeds from the sale to the bank, the $35,000 discrepancy between the sale price in the contract with the Donatis and the contract with Kolinger was a loss attributable to the bank, and not the Morses. Finally, the panel determined that, as the Morses were not entitled to additional damages than they received in the trial court, they were not entitled to a reversal on the issue of attorneys’ fees. The panel, therefore, affirmed the decision of the trial court.

You can view the Appellate Court decision here.

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