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One of the many interesting things we do at the Florida Real Estate Commission (FREC) is decide escrow disputes from all over the state, and render escrow disbursement orders (EDOs) telling the parties how to distribute the funds. Many of these controversies arise from the execution and interpretation of the FAR/BAR contract’s tricky financing contingency.

The new FAR/BAR contract forms effective April, 2017 contain a variety of revisions, including an overhaul of the financing contingency.   Among other things, the old provision attempted to provide sellers with some certainty they wouldn’t be tripped up at the last minute by a buyer’s late-breaking credit denial.

Unfortunately, many buyers’ agents did not pay attention to the built-in timelines, and how those jibed with the deadlines they established for the commitment date, closing, etc. As a result, we often saw cases where these agents unwittingly gave an untimely notice of cancellation that resulted in the buyer’s funds being due and owing to the seller.

A source of general confusion was what happened on the financing commitment deadline – which was nothing. Under the old form, the commitment deadline was merely a stepping off point for other possibilities (i.e., cancellation by either party, provided the same happened prior to 7-days before the closing date, etc.).

The new contingency takes a more definitive approach, and makes it clear that if a buyer cannot obtain a “Loan Approval” within the “Loan Approval Period,” then they have to give written notice within the Loan Approval Period if they want to terminate the contract and get their money back. If timely notice of cancellation is not given, then the contingency is waived. It is a hard and fast deadline, with no exceptions as could be the case in the outgoing contract form. Period, end of story.

The seller likewise still has their cancellation option, this time within three days after the expiration of the Loan Approval Period if they’ve not received notice from the buyer that (i) they received their Loan Approval, or if they have not (ii) tendered a notice of cancellation or (iii) a waiver of the financing contingency. For the queasy seller who has little faith in their buyer’s ability to close, this is a nice, albeit quick, bit of built-in flexibility.

What this contract re-draft did not do is remove the carve-out for a buyer’s last-minute, no consequence cancellation if the property doesn’t appraise, or if “Property related conditions of the Loan Approval have not been met…” From the listing agent’s perspective, this remains a detail to manage and potentially mitigate depending on how far in the future the closing date is, and how it lines up with the Loan Approval Period deadline.

The savvy Realtor will utilize an appraisal contingency rider to manage timing of the issue, or perhaps even strike the carve-out language so it is clear the appraisal is not an excuse upon which the buyer can rely for termination of the contract beyond the deadline for the Loan Approval.

How to manage the property-related conditions exception is less clear, since the buyer is still not required to divulge a copy of their loan commitment (but rather just provide notice of its receipt). In one recent case, a credit denial a day or two before closing based on a lack of reserves held by the condominium association resulted in the FREC voting to return the buyer’s deposit. While to most this was an obvious outcome, it does nothing to provide a seller, who may have already packed up and moved, with any peace of mind.

Faced with this reality, a listing agent may attempt to strike the property-related conditions language of the contingency. Should the buyer refuse, the agent’s remaining choice is to keep abreast of the Loan Approval process, and try to discern any conditions of particular concern. The agent may also request a copy of the Buyer’s Loan Approval, although there’s no guaranty it will be divulged. The end goal is to keep the seller as informed as possible about what, if any, potential pitfalls may exist in the period between Loan Approval and closing.

As I have said so many times before, contract forms are a Realtor’s stock and trade. If an agent has not made it a point to learn and thoroughly understand each these documents, then one cannot help but question their overall commitment to professional practice.

Knowledge of a contract’s inner-workings breeds nothing but a better intuition about how to deal with the practical situations the agent will encounter every day out in the field. This most recent form overhaul presents Realtors with yet another opportunity to become even more familiar with what this paperwork says and means.

As always, we wish you safe travels along on the road to closing, and please do not hesitate to reach out should you have questions regarding this, or any other, subject with which we might be able to assist.

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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.



Money In The Middle

picture-uh=a3f8b524389a1b66624b1f42f2699cc-ps=f92e749295e9ecb15f731ffd9b1c489It can be a funny feeling, finding yourself stuck in the middle… The middle of the road. The middle of the night. The middle of nowhere.

Or, for a transaction broker, that perfectly legal place: the middle of the deal.

Representing both sides puts the agent smack-dab at the intersection of honesty, fair dealing, and potentially unreasonable (and un-addressable) expectations. Not only are you managing twice the details, but also double the perceptions.

Even with the deal negotiated and the contract signed, middle ground in the middle of a transaction can be tricky to achieve. Given that in some states such a relationship is not permitted, you may be working with clients who are at best skeptical of the arrangement. In every case, accolades and attaboys can whipsaw into discontent and distrust if the agent isn’t careful each and every step of the way.

Under Florida law, it shall be presumed that all licensees are operating as transaction brokers unless a single agent or no brokerage relationship is established, in writing, with a customer.” Transaction brokers, by definition, “provide a limited form of representation to a buyer, a seller, or both in a real estate transaction but does not represent either in a fiduciary capacity or as a single agent. The duties of the real estate licensee in this limited form of representation include the following:

  • Dealing honestly and fairly;
  • Accounting for all funds;
  • Using skill, care, and diligence in the transaction;
  • Disclosing all known facts that materially affect the value of residential real property and are not readily observable to the buyer;
  • Presenting all offers and counteroffers in a timely manner, unless a party has previously directed the licensee otherwise in writing;
  • Limited confidentiality, unless waived in writing by a party. This limited confidentiality will prevent disclosure that the seller will accept a price less than the asking or listed price, that the buyer will pay a price greater than the price submitted in a written offer, of the motivation of any party for selling or buying property, that a seller or buyer will agree to financing terms other than those offered, or of any other information requested by a party to remain confidential; and
  • Any additional duties that are mutually agreed to with a party.”

From a purely practical perspective, how does the savvy professional manage this arrangement to everyone’s reasonable satisfaction and a mutually profitable conclusion?

Disclose.  The statutory disclosure form is just the beginning. Knowing this is but one more piece of paper in an extensive pile, a shrewd agent will make and take the time to explain the nuances of the arrangement, and be candid about any prior relationships and dealings with any of the involved parties. The goal, of course, is to work through to an understanding about how this all dovetails with the agent’s legal and ethical obligations to each client in the transaction, and to set realistic, achievable expectations up front.

Refer.  With the agent’s representation being limited, it can help deflect possible conflicts if both seller and buyer engage their own attorney. This ensures that each side has a confidential sounding board squarely in their court, which can in turn be of value to the agent should any potentially controversial issues arise later.

Communicate and update.  Within the boundaries of the agent’s statutory obligations, keeping the lines of communication open and consistent can go a long way toward leveling the playing field and making everyone feel like they’re getting equal time (and by extension, not being left out of anything important). “Reply all” – when possible or practical – can be a valuable tool on many levels, real and perceived, when communicating the mundane details that propel a transaction forward from contract to closing.

Stay above the fray.  Sometimes, and without apparent provocation, the winds can kick up and it becomes hard for even the most seasoned transaction broker to stay the course in the face of deteriorating relations and unreasonable demands. However, in the spirit of honesty and fair dealing, it behooves the agent in the midst of a controversy to take a step back, enlist the guidance and input of objective advocates, and serve as the calm in the center of the storm. Part and parcel of this is mustering the gumption to be measured in your responses, supportive when called upon, and consistent across party lines, all the while staying focused on the clients’ needs, the contract terms, and your legal and ethical obligations to each party.

Call in the big guns.  One of the best tools available to the transactional agent is the one that sits right down the hall – your managing broker. A careful agent will enlist their manager’s assistance up front, and often again throughout the transaction, if for no other reason than to have a second set of eyes (and ears) checking your work and, more importantly, helping you gain clarity and chart your best course when storm clouds start to form on the horizon.

Boiling this all down, while it sounds great in theory to “bring both sides,” the arrangement can be an awkward one if not handled with a deft hand and a keen eye. Suffice to say that like most facets of the agent’s practice, transaction brokerage is as much about legal responsibilities, as it is about intuition and the ability to communicate and manage the process effectively.

For these reasons it behooves the astute agent to take a methodical and thoughtful approach should the transactional opportunity present itself. And, be unafraid to get help when and where needed to ensure that buyers and sellers alike are competently represented, while in turn fulfilling your legal and ethical responsibilities each and every step of the way.

As always, I welcome your questions and feedback, and wish you safe travels on the road to closing.

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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.