My standard response to "can we sue ___" is to say yes, you can always sue anyone you want for anything you want. The important question to ask and have answered is "can we win." To provide you a reliable opinion as to the validity of any causes of action in a forum such as this is really not possible. I do, however, believe that you have a strong case for breach of contract, though short-sales are very strange animals. First, depending upon how the purchase agreement was drafted, the bank who must approve the short-sale essentially becomes a party to the sale, and tends to drive the transaction. The seller is likely liable for failing to disclose the existence of the bankruptcy earlier in the transaction. The damages for that failure to disclose may be paying a higher price for the home, or worse, losing the home altogether. I have to assume that she was in bankruptcy to save the home, and if she dismissed it and now you have to start the short-sale negotiations over again, there is a possibility that the home could be foreclosed before you get to close escrow. In that case, again, you may have a cause of action for damages resulting from her breach of the purchase contract. The problem, of course, with a forum such as this is that we have no ability to review the documents related to your purchase to determine to what extent the seller is not liable for actions taken by the bank. I've reviewed a lot of real estate sales contracts in short-sales, and though most agents use CAR forms, I've seen enough of them drafted in other manners that I couldn't hazard a guess in your case. I strongly recommend that you contact a local real estate attorney to review your contract and give you a reliable opinion as to what your rights are, and the propriety of continuing forward in this transaction, or cancelling and pursuing damages. One past point - if the Seller is in bankruptcy, before you spend the time and money to chase her with a lawsuit, look at the paperwork filed with the Bankruptcy Court. She may not have any assets with which to satisfy a judgment resulting from a lawsuit.
David L. Gibbs, Esq.
The Gibbs Law Firm, APC
San Clemente, California
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If you end up acquiring the property at a higher price and interest rate, you might be able to sue the seller for the difference. It depends on, among other things, how the contract was drafted.
No way to say unless all documents are reviewed by an attorney. As discussed in other responses depends on lots of factual (contractual) issues.
You should consult with real estate attorney to weigh all you options. Good luck.
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