In order to make a prospective buyer’s offer more attractive to a seller, we sometimes see buyers take risks that impact certain key contractual protections.  A few examples that we have seen are
    • high initial deposits
    • financed transactions that are written as cash transactions, and
    • offers lacking any contingency for the sale of a buyer’s residence when the buyer does not otherwise have the cash to close
When writing up an offer that includes any of these items, it is important to have a thorough conversation with the buyer to make sure that the buyer fully understands the contract to prevent issues later on.
For example, if the buyer is choosing to submit an offer as cash but intends to finance the transaction, it is very important to understand that the buyer is losing the protections afforded under the financing contingency clause of the contract, as well as the ability to lean on any other protection in the financing section.  The buyer can no longer benefit from the automatic extension provision of the FR/BAR Contract in the event that delivery of the Closing Disclosure by the lender is not timely made and the three-day rule would otherwise cause a delay in the closing date.  Additionally, the buyer cannot rely on the FR/BAR’s post-loan commitment contractual protections, such as
  •          the buyer not being found in default if property related conditions of the loan are not met
  •          if the appraisal is insufficient, or
  •          if the buyer’s bank completely dissolves mid-transaction
If you are assisting a buyer with an offer and the buyer elects to submit the offer as cash, when the transaction willin fact be financed, it is important that the buyer speaks to a real estate attorney if they do not fully understand the contractual safeguards they may be risking.
Another example of a risky offer is one that does not include any contingency in the contract for the sale of thebuyer’s property when the buyer does not otherwise have the cash to close.  In some such cases, buyers are under the mistaken presumption that they are still covered by the financing contingency as their loan commitment may be contingent on the closing of their first sale.  It is important that such buyers know that this may not be the case, as their sale may only be a requirement of their loan commitment when it is issued.  Without that contingency, if the buyer’s home does not sell, the buyer is nearly certain to be forced to breach the contract and risk losing the earnest money deposit if the buyer is unable to secure an extension from the seller.   This risk would be eliminated with the addition of language in the Additional Terms section of the offer, or by use of an additional Addendum.
If your buyer needs assistance understanding the legal implications of their offer or contract, or if you have any questions about any of the foregoing, contact your local real estate attorney.
Berlin Patten Ebling, PLLC
Article Authored by Jessica Featherstone, Esq.
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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