Risk of Loss (real property): which scenario entitles the buyer to recover the portion of the price paid?

• A. Only if the seller remains in possession during the contract period.
• B. Neither legal title nor possession has been transferred and the property is destroyed or is taken by eminent domain.
• C. Only an immaterial part of the property is destroyed.
• D. If legal title or possession has been transferred, the buyer bears the loss.

Answer: (B)

In real property contracts, the risk of loss generally stays with the seller until the buyer receives either title or possession of the property. If the property is destroyed or taken by eminent domain before that transfer happens, the contract cannot be performed as promised, and the buyer is typically entitled to recover money paid and rescind the deal.

The scenario described fits this rule exactly: neither legal title nor possession has been transferred, and the property is destroyed or taken by eminent domain. Because nothing has been conveyed to the buyer, the buyer has not received what was bargained for, so they can recover the payments already made.

Why the other possibilities don’t fit as well: once title or possession has passed to the buyer, the risk of loss generally shifts to the buyer. A destruction that occurs after transfer doesn’t entitle the buyer to recover payments. If only an immaterial part is destroyed, the impact on the contract may hinge on materiality, and it does not automatically grant recovery of the price paid. If the seller still has possession during the contract period, that doesn’t by itself guarantee the buyer’s recovery—the critical factor is whether transfer of title or possession has occurred and whether the loss happens before that transfer.