As many of you have experienced, 2015 was a remarkable year for transactional growth and price appreciation. We are thankful for all of our referral sources, buyers, and sellers we have had the privilege to work with along the way. We are hopeful these blogs have provided you and your clients tidbits of useful information that can be a resource to getting your transaction successfully closed. Although there are many New Year’s resolutions that quickly fade, we believe all of us strive to make each year and transaction better by learning from prior year’s experiences. In 2015 we dealt with a myriad of matters that covered everything from contractual issues to the “Unreasonable Seller”. We thought it might be useful to once again talk about the unreasonable seller in an effort to help get that seller to the closing table in 2016 a little bit easier.
When a title defect/issue is discovered during the closing process, most Sellers will be quite helpful in resolving those issues. However, there are those occasions where a Seller is resistant, dismissive, or flat out unwilling to assist the closing agent in resolving a title defect/issue. Some Sellers believe that if a title defect is discovered, then they can simply sit on their hands and do nothing and hope that the issue will go away, or worse yet, that the issue will not be discovered by a subsequent closing agent. As many Sellers have eventually learned, this thought process is flawed, and legally very risky for the Seller, and possibly the Seller’s agent.
Pursuant to Paragraph 18 (A)(ii) of the FR/BAR Contract (“Contract”) a Seller must take reasonable diligent efforts to remove title defects. Reasonable diligence requires the Seller to act in good faith and appropriately in view of the circumstances. Determining what constitutes reasonable diligence is a mixed question of law and fact. The non-delivery of documentation that is readily obtainable by the Seller to cure a title defect more likely than not would be deemed unreasonable diligence and therefore trigger a Seller default under the Contract. However, requiring a Seller to pay off a significant prior lien that they inherited due to the neglect of a prior closing agent may be deemed an extraordinary effort and therefore not trigger a default under the Contract. In either event, the Seller should understand three very important things. These three things can save your closing if communicated clearly and properly to the unreasonable seller.
First, the problem will not go away. Whether the Seller elects to use extraordinary efforts, reasonable efforts, or no effort at all, if the issue does not get resolved, in all likelihood the closing will not occur. Second, if the Seller does not use reasonable efforts to cure the issue, the Seller can get sued by the Buyer. And third, and maybe most importantly, the Seller (and the Seller’s agent) each have an affirmative duty to disclose the issue to ALL potential future buyers.
If your client is unwilling to assist in resolving a title defect, or it is unclear what is considered “reasonable diligence” under the circumstances, you may want to encourage them to seek the advice of an attorney. Burying one’s head in the sand will not resolve the issue, and it most certainly will not get the deal closed. And as always, should you have any questions regarding the foregoing we urge you to consult with your local real estate attorney. We wish everyone a productive and prosperous 2016!
Berlin Patten Ebling, PLLC
Article Authored by Jamie Ebling firstname.lastname@example.org
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.
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