Well it’s that time of year where the FAR/BAR committee has updated its standard contract forms. They made several changes, some of which are quite substantive, and others of which are more ministerial. We know that everyone is anxious to understand the changes that were made, and more importantly, why. Since the changes are too extensive to explain in a single article, we will be taking a deeper dive into each of the changes over the next several editions. In some cases, we will address several changes, and in some instances, we will devote an entire article to one change. This article will address certain changes to Sections 1, 2, 4 and 5 of the contract, and to the extent possible, we will try to opine as to why the change was made. Please refer to this sample of a redlined version of the contract for ease of reference as you review this article.
Section 1(d) was altered to delete certain personal property that is to be automatically included (largely outdated items) and to add certain personal property. While the changes themselves are fairly self-explanatory, the changes were likely made to address disputes that we see time and time again at the closing table, namely personal property that was unlawfully removed or was not made available at closing. The change should address and resolve a number of disputes that we regularly see (although we are still likely to continue to see Sellers remove items that the contract required them to convey unless the realtors clearly explain to them up front what needs to remain). There is also an addition which makes it clear that the personal property has no value, an addition that makes it less likely that there could be a sales tax consequence that might otherwise have occurred if the parties try to assign value to personal property.
Section 2(a) was amended to delete the some of the information required for the escrow agent, a change that will make it easier for realtors to prepare the contract.
Section 4 of the contract was amended to make it clear that the closing of the transaction shall not occur until all funds required for the closing have not only been received by the closing agent, but are also considered to be Collected (as defined in the contract). General speaking, Collected means that the closing agent is in possession of all funds required to close, that those funds have cleared, and that they can be legally disbursed. This change was likely designed to address recurring situations in which the buyer attempts to present a check at the closing table (or shortly beforehand). A check is not considered good funds until it clears, which can take 7 to 10 business days depending on the bank. So if your client intends to fund the transaction by check, as a rule of thumb, they should attempt to present the check to the closing agent at least two weeks before the closing or this new language makes it clear that that closing cannot occur and they could be in default.
Section 5 was amended due to fairly significant changes made to the financing contingency (to be addressed in a subsequent article). Generally speaking, the changes now require Loan Approval to be obtained and lender’s underwriting to be complete before the CFPB closing related extensions can be enforced. In other words, you can no longer attempt to extend the closing date by merely arguing that CFPB requirements have not yet been met. You must also first have Loan Approval and the lender must have finished their underwriting. This will close a large loophole whereby buyers were basically able to extend the closing date because their lenders “didn’t have their act together.” This change could have the effect of putting Buyer’s and their lenders at odds if the lender is still performing last minute underwriting, something that happens quite regularly (and something that was used quite often to extend closing dates). This one will be an interesting one to watch.
Subsequent editions of this article will address other material changes, and as always, if you have any questions in the meantime, we encourage you to reach out to your trusted real estate lawyer.
Evan N. Berlin, Esq. firstname.lastname@example.org
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.
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