The Day The Wall Came Crashing Down

GetMedia[1]A client was awaiting closing on the sale of her historic home when one day, lo and behold, the rustic old wall along a perimeter of the property came crashing down.

Ay yi yi.

Just one more headache in the protracted process of selling a home with a long and storied history, but one with the kind of deferred maintenance that caused the owner’s (shrewd) Realtor to demand an As-Is Residential Contract for Sale and Purchase for all offers received.

According to that form: “Except for ordinary wear and tear and Casualty Loss, Seller shall maintain the Property, including, but not limited, lawn, shrubbery and pool, in the condition existing as of Effective Date (“AS IS Maintenance Requirement”).”

So what to do in a case like this where the wall was in an obvious state of disrepair at the outset, but just couldn’t hold itself together long enough for the closing to occur?

Put another way, given the contract’s AS IS Maintenance Requirement, how do you bring something like this back to its same decrepit state as of the Effective Date, or quantify the expense for doing so?  By extension, does it then become the seller’s obligation to provide a new replacement for what fell apart in the interim, the cost of which can be substantial?

In this case, no contractor who visited the property was able (or willing) to give an estimate for anything other than a proper repair and replacement.  What ended up transpiring was a negotiated credit that covered a portion of the estimated repair cost.  What first took place was quite a bit of conversation about the blurry nature of the parties’ respective rights and obligations under the contract, and what anyone was legally required to do.

From a technical perspective, the contract probably cannot reasonably be expected to give explicit guidance on this subject matter.  What this does, though, is land everyone smack dab in one of those gray areas that lawyers love (we make a good living in that space), and Realtors detest (“Just tell me what to do so we can get this closed!”).

What, then, is the smart listing agent to do when preparing to present a property with known (or anticipated) structural challenges?  Here are a few thoughts to get you started:

  1. Take a good long look around for readily observable issues, such as active leaks, foundation cracks, shaky fences and walls, etc.  The things any regular person might be reasonably expected to notice.
  2. Ask the seller to be thorough and candid in filling out their disclosure, and include any known and/or observable issues about which they have concern.
  3. Require all offers to be submitted using the As-Is Residential Contract for Sale and Purchase.
  4. Consider specifically addressing trouble spots in the contract, i.e., “Perimeter wall is specifically excepted from Seller’s AS-IS Maintenance Requirement and will be conveyed to Buyer in its as-is condition at the time of Closing, regardless of whether the condition has changed beyond the extent of ordinary wear and tear.”

This is not to suggest that the agent is taking the place of the home inspector, or the seller’s disclosure is meant to take the place of the buyer’s thorough review of the property.  Where the agent wants to end up – to the extent this can be achieved through clear and concise contract drafting – is in a bright line situation where one and all agree that items of concern that could deteriorate substantially between the Effective Date and Closing are not something for which the seller is financially responsible (think active roof leak…).

As always, you are encouraged to seek the advice of an experienced real estate attorney should you run across issues such as these and need a helping hand when the time comes to respond to an offer.  Bright lines are best established when there is time to think through the situation, rather than when deadlines are looming and pieces of history come crashing down around you.

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This information in this site is not intended to establish an attorney-client relationship, and if anything herein could be construed as legal guidance or advice, I strongly encourage you to consult with your own attorney before relying upon any such information.

All rights reserved. This copyrighted material may not be re-published without permission. Links are encouraged.

dunlapmoran.com

Performing At Your Peak: Doing Laser Surgery With A Machete

Imagine being at the dermatologist’s office to get a mole removed, and she walks in brandishing a machete, rather than a scalpel?! Chances are you may think that even the most skilled technician might end up taking more of you with her than was intended (or necessary) for such a precise operation.

In the real estate game, the same thing happens when the time comes to excise a contingency from a ratified contract. Sellers’ markets beget demanding listing agents who, in return for a hard-fought concession, insist that a specific contingency – or worse, “all contingencies” – be lifted.

Eager to please and keep the deal rolling toward its intended conclusion, the unwitting agent who uses a machete, rather than a laser, to accomplish this task can back into a heap of unintended consequences.

Periwinkle back

Aside from the obvious inspection and financing contingencies within the FAR/BAR contract forms (each of which contingencies contain their own nuances and variables), agents tend to forget about those other matters upon which the contract is contingent, such as:

  • The seller’s obligation to convey marketable title
  • Survey-related issues
  • Permit close-out
  • Flood zone determination and insurability

…and so forth and so on.

Take, for example, the occasion under the regular FAR/BAR repair-limits contract when a seller agrees to address inspection-related matters, and the listing agent requests that in return the buyer “remove the inspection contingency.” A simple addendum saying “Buyer removes the inspection contingency in return for Seller repairing XXX prior to Closing” is defective for a variety of reasons, including the following:

  1. The contract form provides various specific definitions, including the meaning of “Inspection Period” within the “Property Inspection and Repair” section. There is no definition of “inspection contingency.” Therefore, such a reference is both overly broad, not to mention ambiguous.
  2. There are three different inspection topics within this section (“General Inspection,” “WDO Inspection,” and “Permit Inspection”), each with its own repair limit, and each dealing with a specific subject matter. A blanket removal of all inspection contingencies would theoretically terminate, for example, the obligation of a seller to correct costly permit or municipal lien violations that may exist or, worse yet, which may not have been revealed because the municipal lien search was not yet in hand when the General Inspection was completed and the repair concession negotiated.
  3. The walk-through inspection right (and Seller’s obligation to provide access for same) is contained in the same section of the contract. Depending on whether or not the parties are getting along, a blanket removal of “all inspection contingencies” could be viewed by an antagonistic seller as a waiver of the buyer’s final walk-through right and seller’s obligation with respect to same.

Similar care should be taken when assigning obligations to and as between parties. Take the situation where the responsibility for selecting and paying for title services is negotiated back and forth, and all three of the check boxes within the FAR/BAR contract’s Title Evidence and Insurance section end up deleted and replaced with a simple “Seller to pick and pay for title.”

In this case, kudos to the selling Realtor for pulling off a coup (whether or not intended) by moving the lender’s title insurance expense – a buyer cost even when the seller selects and pays for owner’s coverage – to the seller’s side of the balance sheet.

And, shame on the listing agent who wasn’t familiar enough with the standard contract form to realize that this deceptively simple alteration deleted a benefit contained in the pre-printed provision, and instead obligated their client to higher closing costs.

I could go on and on with stories of such unintended consequences where well-meaning agents were led astray by demands for some sort of action and the desire to get something – anything – in writing in order keep a deal moving (just imagine the fallout from the following addendum language, which I have seen used on far too many occasions: “Buyer lifts all contingencies to closing and Buyer’s earnest money deposit is non-refundable”…).

Suffice to say that too great an understanding of the standard contract form set is never a bad thing, and the knowledge of each form’s contents and inner-workings breeds nothing but a better intuition about how to deal with situations where a general request (or demand) can potentially lead to disaster.

As always, we are eager to assist with your contract and closing needs, and every request for assistance with contract formation or drafting is an opportunity for us to educate our agent friends about this essential, but highly technical, aspect of their business. Peak understanding leads to peak performance (not to mention satisfied, long-term clients), and we appreciate every chance we have to help our agents reach for the sky!

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This information in this site is not intended to establish an attorney-client relationship, and if anything herein could be construed as legal guidance or advice, I strongly encourage you to consult with your own attorney before relying upon any such information.

All rights reserved. This copyrighted material may not be re-published without permission. Links are encouraged.

dunlapmoran.com

Repair Hangover Helper

Have you ever encountered the situation where a seller is unable to meet the maintenance or repair requirements under the FAR/BAR contract prior to closing?

Fear not – the contract provides a clear and concise remedy.

If you have unexpended repair limits, then “sums equal to 125% of the costs to complete the applicable item(s) (but not in excess of applicable [repair] limits) shall be escrowed at closing.”

But what insurance do you have that the seller will cover the difference, should the estimates be too low?  The contract also states that “if actual costs of required repairs…exceed applicable amounts, the seller shall pay such costs (but not in excess of [repair] limits.”

The moral of the story is, do not let an aggressive closing agent tell you they’re giving your seller a “gift” by escrowing the entire cost of the repair/replacement in order to cover undiscovered or undisclosed issues that may come to light as a result of the work yet to be conducted.  The contract is clear on is face as to the parties’ rights and obligations, and should be followed accordingly.

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This information in this site is not intended to establish an attorney-client relationship, and if anything herein could be construed as legal guidance or advice, I strongly encourage you to consult with your own attorney before relying upon any such information.

All rights reserved. This copyrighted material may not be re-published without permission. Links are encouraged.

dunlapmoran.com

$0 Repair Limits vs. As-Is

2829 S OspIn Section 12 of the FAR/BAR contract, a seller warrants the operational condition and structural integrity of their property, and has the responsibility to maintain or deal with such matters going forward from the contract’s effective date through closing.  Subject to the Section 9(a) repair limits, the seller is responsible for structural or equipment repairs, and to close-out (or obtain and close out) building permits.  However, there are Realtors who are of the impression that putting $0 in the Section 9(a) repair limits makes the deal “as is.”

Zeroing out the repair limits does not remove a seller’s warranties and representations about the Section 12 inspection items (general property, wood destroying organisms, or building permits) or, perhaps more importantly, absolve a seller of responsibility to maintain or deal with such matters from the contract’s effective date forward.  All the $0 limit does is ensure there will be a discussion about what is going to be repaired or closed out.

Contrast this with a true as-is contract, where the seller’s only responsibility is to make sure the condition of the property is the same at closing as on the effective date of the contract – i.e., they can’t let that hole in the roof get any worse than it already is.  The seller makes no warranties whatsoever about the operational fitness of the property or its history.  What the buyer sees is what the buyer gets.

There are two addenda on point:

1) The FAR/BAR Right to Inspect and Right to Cancel addendum serves the same purpose as some of the home-grown inspection addenda you see proffered by other closing firms – it gives the buyer a free look period, but if they elect not to cancel, then the repair limits ($0 or otherwise) remain, as do the seller’s warranties and representations.

2) The FAR/BAR As-Is addendum, on the other hand, removes the Section 9 repair limits and the Section 12 warranties and representations, creating an actual as-is, “what you see is what you get” contract.  From a drafting perspective,  if as-is is your intent, I’d suggest that the FAR/BAR AS-IS contract (the same one you usually see in short sales) is the better vehicle for your offer, since it incorporates the concept of the As-Is addendum in a cleaned up, single purpose form.

The upshot is this: you are doing your seller client a disservice if you use the term “as-is” in connection with a FAR/BAR offer with $0 repair limits and/or a Right to Inspect/Right to Cancel (or homegrown) addendum attached.  Contract forms are a Realtor’s stock and trade – be absolutely clear in your understanding of what each form (and addendum, regardless of the source) says and does, and what obligations your client has as a result of the complete contract presented.

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This information in this site is not intended to establish an attorney-client relationship, and if anything herein could be construed as legal guidance or advice, I strongly encourage you to consult with your own attorney before relying upon any such information.

All rights reserved. This copyrighted material may not be re-published without permission. Links are encouraged.

dunlapmoran.com