Buyer Protection? What about the Automatic Extension!?

 

Picture this, it’s the day before closing and all parties are anxiously awaiting the culmination of the transaction. Unfortunately, the lender has reached out to the closing agent that more time is needed. Have no fear, the “automatic ten (10) day extension” is here (to coin a phrase). No extension addendum is needed, right? WRONG… well, it depends.

Paragraph 5(a) of either the FR/BAR Residential Contract For Sale and Purchase, or the “AS IS” Residential Contract For Sale and Purchase, states if Paragraph 8(b) is checked and Closing Funds from Buyer’s lender(s) are not available on Closing Date due to Consumer Financial Protection Bureau Closing Disclosure delivery requirements (“CFPB Requirements”), then Closing Date shall be extended for such period necessary to satisfy CFPB Requirements, provided such period shall not exceed 10 days.

So, what circumstances trigger Paragraph 5(a)? It is a common misconception that the above language protects a buyer if their lender is not prepared for the Closing Date for any reason, which is simply not the case. There are two triggering mechanisms:

1. Paragraph 8(b) must be checked, meaning the Contract is a financed transaction, and
2. The unavailability of Closing Funds from Buyer’s lender are not available due to CFPB delivery requirements

Given the language in Paragraph 5(a), it is imperative to understand the reason behind the delay in funding by the lender before claiming that the automatic extension applies. Furthermore, the Closing Date is not automatically extended for ten (10) days. The Closing Date is only extended for the period of time necessary to satisfy the CFPB delivery requirements, which period of time cannot exceed ten (10) days. If a lender fails to provide a buyer with the Closing Disclosure three (3) days prior to the Closing Date, in most cases, this would be an instance where the lender failed to meet the CFPB delivery requirements, and the automatic extension would apply.

However, to the extent that there is the slightest amount of ambiguity as to whether or not a lender delay will be a CFPB delivery requirement, realtors should strongly advise buyers to enter into an executed extension of the Closing Date in order to avoid a material contract default. Moving forward this way allows Paragraph 5(a) to be a valuable backup measure in the event a Seller hesitates to agree to an extension.

If you have any questions with regard to the ten (10) day extension rule due to CFPB delivery requirements, we urge you to contact or consult with your local real estate attorney for guidance.

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.

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