August 16, 2011
The divorce court orders, or the parties agree, that marital real estate be sold for a stated listing price. The real estate market then crashes, and the stated listing price is much too high. What options are available when the property fails to sell?
This fact pattern has arisen with some frequency in recent years, due to the subprime mortgage crisis, and the applicable general principles are starting to become settled. To begin with, an order or agreement that sets a listing price is materially different from an order or agreement that sets a sale price. A listing price is not an inflexible price at which a property absolutely must be sold but, rather, an initial asking price. "[T]he initial asking price was exactly thatCa starting point, not a nonnegotiable or guaranteed sale price." Townsend v. Townsend, 724 N.Y.S.2d 545, 546 (App. Div. 2001). When no offer is received at the initial listing price, the normal practice when selling real estate is to reduce the listing price as needed until one or more offers are received.
Thus, an order establishing the listing price does not prevent the court from reducing that price if the property fails to sell. Likewise, an agreement on the listing price is not an agreement upon the sale price, and does not prevent the court from ordering sale at a reduced price if no offers materialize after the property has been offered at the listing price for a reasonable period of time.
Reduction in the listing price is generally preferred over other remedies. In Brown v. Brown, 709 S.E.2d 679 (S.C. Ct. App. 2011), the property failed to sell at the agreed-upon initial listing price of $274,000. The court then entered a money judgment against the wife for the husband's share of the property. The order was reversed on appeal as an improper substantive modification of a final property division order. In the alternative, the trial court also "set the home's [new] initial listing price at $255,550, and required the listing price to be reduced by five percent every sixty‑day period the home remained unsold." Id. at 682. This order was expressly affirmed as a reasonable exercise of the court's power to set a new listing price when the property fails to sell. "Contrary to the wife's argument, establishing the terms of the sale is well within the family court's statutory authority." Id. at 684.
Another example is Ryan v. Ryan, 946 N.E.2d 1191 (Ind. Ct. App. 2011). There, after the property did not sell at the agreed-upon initial listing price, the trial court held that it was powerless to take action. The appellate court reversed and ordered a reduction in the listing price. "The Settlement Agreement and Private Agreement do not contain any terms or provisions which address circumstances such as those presented when the dollar amounts set forth in the agreements make it impossible, as a practical matter, to implement the intended sale of the properties due to a sustained decline in residential housing prices." Id. at 1196. The case was remanded with instructions to hold a hearing and then to "issue an order providing additional terms to the extent the Settlement Agreement and Private Agreement are silent, i.e., what steps would be taken to accomplish the intended sale of the properties under the circumstances." Id. at 1200. Such an order would probably have to include an appropriate reduction in the listing price.
If the property does not sell after a reasonable period on the market even with reductions in the listing price, the court then may have authority to order a different method of division, so long as the overall percentage division of value remains unchanged. See Roberts v. Roberts, 629 A.2d 1160 (Conn. App. Ct. 1993) (where judgment ordered a private sale of home and sale proved difficult, proper to order auction sale); Vest v. Vest, 855 N.Y.S.2d 597 (App. Div. 2008) (where original order provided that commercial property would be sold, with wife receiving 25 percnt% of proceeds, and property remained unsold after five years on the market, proper to order husband to pay wife 25%% of appraised value of property); Romeo v. Romeo, 611 A.2d 1325 (Pa. Super. Ct. 1992) (original order required sale of home and lot, with specified division of proceeds; when home and lot proved difficult to sell, proper to award home to wife and lot to husband; approximate division of value between the parties was unchanged). All of these cases involved properties that had failed to sell after a long period of attempted sale, including reductions in the listing price.