Almost to the Finish Line…

Closing day is almost here! The loan is approved, the final wire has been sent, and Buyers cannot contain their excitement! Both the AS-IS Contract and the Standard FAR/BAR Contract provide the Buyers with the opportunity to conduct a walk-through inspection on the day of Closing or the day before Closing, to confirm that 1) all items of Personal Property mentioned in Section 1(d) of the Contract are on the Property, 2) that all trash and personal items have been removed, and 3) verify that the Seller has maintained the Property as required by the Maintenance Requirement of the Contract (Section 11). On most occasions, the required Personal Property items remain, the Seller’s personal items and trash have been removed, the Property is in the same condition as it was on the Effective Date, and we close the deal. But, what happens when the walk-through does not go as planned? Below are some common walk-through issues and the contractual remedies for violations:

Situation 1) Buyer says: “the Air Conditioning is not working!”

• Both the AS-IS Contract and the Standard FAR/BAR Contract have an ongoing maintenance requirement, which is contractually defined as, “except for ordinary wear and tear and Casualty Loss, the Seller shall maintain the Property, including, but not limited to lawn, shrubbery, and pool, in the condition existing as of the Effective Date.” Despite the Property being sold AS-IS, the Seller is required to maintain the Property until the Closing Date, so that the Property is in the same condition as it was on the Effective Date. If the A/C was working on the Effective Date and throughout the Inspection Period, the Seller is obligated to have the A/C working on the Closing Date, even if that means the A/C needs to be repaired prior to Closing.

Situation 2) Buyer says: “the Property is a mess and the Seller is still packing!”

• Paragraph 6 of the Contract states that the “Seller shall, at Closing, deliver occupancy and possession of the Property to Buyer free of tenants, occupants and future tenancies. Also, at Closing, Seller shall have removed all personal items and trash from the Property and shall deliver all keys, garage door openers, access devices, and codes, as applicable, to Buyer.” Per the Contract, the Closing Agent establishes the time of Closing, meaning if the Closing Agent schedules the Closing for 1:00 pm on the Closing Date, the Seller must remove all personal items, trash, themselves, and provide possession by 1:00 pm on the Closing Date. If the Property was still a mess and the Seller was still packing at 9:00 am on the Closing Date, they would have until 1:00 pm to provide possession and the Property in broom clean condition. There is no 5:00 pm or end of business day walk-through rule in the Contract.

Situation 3) Buyer says “I don’t think that stain on the carpet, or that scuff on the wall, was there before!”

• Assuming the carpet stains are not brand new and the wall scuff is minimal, these issues would likely be attributed to normal wear-and-tear. If the Seller lived in the Property for a significant amount of time, the carpet stain or wall scuff might have been there on the Effective Date (that will need to be determined), and it is unlikely one wall scuff would rise to the level of a material breach. However, if the carpet stains are new, or if the wall was severely damaged when the Seller was moving out, as previously mentioned, the Seller has an ongoing maintenance requirement to bring the Property into the same condition as it was on the Effective Date. The parties may choose to move forward with Closing and have the Seller’s provide a Seller Credit (subject to lender approval, if applicable), or extend the Closing Date in order to provide time for the Seller to make the necessary repairs.

As always, if your buyer runs into an uncomfortable situation at a walk-through, we urge you to contact a trusted, local real estate attorney.

Sincerely,

Mallory Moretti, Esq.,mmoretti@berlinpatten.com
Berlin Patten Ebling, PLLC

This communication is not intended to establish an attorney client relationship, and to the extent anything contained herein could be construed as legal advice or guidance, you are strongly encouraged to consult with your own attorney before relying upon any information contained herein.

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

www.berlinpatten.com

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Addressing Financing Contingencies

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CRSP-12 and CRSP-12 Addendums Debut

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We are frequently asked about listings being marketed as “pre-approved” in the MLS. We suspect this designation is intended to imply or suggest that there can be a quick closing.  We feel that the use of the term “pre-approved” can be misleading and lead to unrealistic or false expectations. Other than a pre-approval under HAFA,…

Fraud Investigation – A Top Priority for Freddie Mac

In previous blogs, we have discussed our concerns about short sale fraud and the warning signals to watch for.  According to Freddie Mac’s Mortgage Fraud Officer, Short sale fraud has also become the top priority for Freddie Mac’s fraud investigation unit as well. Per the attached article, recent trends that Freddie has been alerting Real…

Assignable Contracts & Specific Buyers

Please be advised that short sale lenders are getting very strict about approving the specific buyer identified on the contract. As such, lenders are carefully scrutinizing assignment provisions in contracts. Short sale lenders who are reviewing contracts (that permit the contract to be assigned) are kicking back the contracts more and more frequently.) Lenders are…

The Importance of a Municipal Lien Search

Performing a municipal lien search is crucial when purchasing property in this day and age. In many cases there are unknown or undisclosed fees, costs or other issues that will impact a buyer post-closing. In addition a municipal lien search generally will assist a seller in complying with contractual terms to avoid a default. Examples…

A New Buyer Can Be Substituted for One Who Walked

We have learned of a very interesting development with respect to Bank of America. Bank of America has advised that it will permit a new buyer to step into the shoes of a buyer who has walked away from a transaction.  Furthermore, Bank of America has advised that the process will not have to begin…
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