Should Short Sale Sellers Sue a Buyer Whose Breach of Good Faith Leads to Foreclosure?

Sometime around mid-October, I received an offer on one of my Sacramento short sales. The buyer's agent swore that the buyers loved the home. On top of that, the agent promised in writing not to write any more offers for those buyers as everyone waited for short sale approval. We received approval from one lender and were working on gaining cooperation from the second lender when a cancellation of purchase agreement appeared in my email inbox.

The explanation was the buyers decided they could not afford the improvements they wanted to make. They had not gone back to the home since the day they wrote the offer. This epiphany seemed to have come to them right after they received the approval letter, when reality sunk in. The agent didn't have the guts to pick up the phone and call me. For all I know, that agent had been out showing these buyers other homes and writing other offers.

If that was the case, this agent could possibly be held liable for breaking the REALTOR Code of Ethics. Article 1 says agents must be honest with each other. On top of that, though, buyers who walk away from a short sale after signing a contract could be held liable for breaching the good faith covenant inherent in contracts. A lawyer could argue in court that those types of buyers probably had no intention of following through on the purchase should a better opportunity present itself along the way.

Moreover, what if the seller was already in foreclosure, facing a trustee's sale, and relying on this particular buyer to perform? Is it possible that the seller could hold the buyer personally liable if the seller lost the home to foreclosure as a result of the cancellation? I'm not a lawyer, and I can't give legal advice, but it seems to me that it's possible a seller in that situation might have legal recourse against such a buyer.

After all, by ratifying the contract, the buyers prevented the seller from selling to a serious buyer -- a buyer who may have been able to perform during the allotted time frame. Buyers who are writing multiple purchase offers on Sacramento short sales may want to rethink that kind of strategy. What do you think? Do short sale sellers have a legal right to sue a buyer for damages if that buyer's failure to perform and breach of good faith leads to foreclosure?