You have a Seller ready to list the residence for sale, you’ve confirmed that the Estate of the original owner who passed away has been opened, and a Personal Representative has been appointed by the Court. Your Buyer is an investor who works with a Limited Liability Company (LLC) who wants to buy the property to develop the land. So, the parties to the Sale and Purchase Agreement are pretty clear, the Personal Representative of the Estate is the Seller and the LLC is the Buyer.
But, what happens when the Person Representative dies or is replaced before closing, or the LLC wants to assign the contract to a different business entity? The parties who entered the contract may not always be the same ones you have at closing. Failure to make sure that Buyer and the Seller are still the actual parties to the Contract could result in a surprise lawsuit from an actual party asking for monetary damages or specific performance under claims of negligence, breach of contract, or even fraud. Here are some suggestions when confronted with circumstances like these.
Before closing, make sure that the Estate is still open, the Letters of Administration you were provided when the contract was entered into are still valid, and that there has not been a substitution of parties or a proceeding to remove the Personal Representative. Getting the proper documentation from the heirs or beneficiaries of the Estate can also be necessary for a title insurance company so you can close. What may seem like a simple procedural step on the surface can be a real morass when family members are fighting over an Estate and your Seller, eager to get the house sold and the money in the Estate account, fails to tell you all that is going on behind the scenes.
The same holds true with a corporate client. You must make sure that the business entity is still an active corporation or LLC, that there has not been any name change, or that there has not been a change in entity structure that would affect the original Buyer’s authority to close on the sale. And if the Buyer is assigning the contract to another business entity, don’t cut corners. Do the same due diligence you did when you first confirmed that the Buyer was legitimate and had the authority of the corporation or LLC to enter into the contract.
In addition, you must get a copy of the assignment to confirm that this “new” Buyer was properly assigned this contract. Of course, make sure you review the Contract itself to ensure that the parties agreed to allow assignments. That one simple provision may delay closing, or worse, blow up the entire sale.
Of course, these are just two examples of parties changing after entering a contract. Other examples are trustees of a trust, guardian of the property in a guardianship, a seller entity changes structure or ownership, and even a single individual could get married before closing which could create issue at closing if not brought to your attention as early as possible.
To do your best to reduce the likelihood of possible litigation because a new party has substituted in to the Contract, remember these two important things: 1. Be diligent every step of the way from the moment you list the property or bring a Buyer to the table to the recording of the deed and the disbursement of funds at closing; AND 2. If there is ever a question as to who the proper party to the contract is, consult with a qualified real estate attorney for some sound legal advice.
Mark C Mann, Esq.
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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