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Your COVID-19 Closing Related Questions, answered by Berlin Patten Ebling

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We know you are all tired of receiving COVID-19 related bulletins, but due to the flood of questions we have received on the topic, we felt that this would be a useful and timely topic. This Q&A will answer some of the most common questions we have received over the last few days. We will try to keep the answers brief, and urge you to Contact your real estate attorney for more detailed answers regarding your specific contract situation. This is not intended to be legal advice but only our general observations. The law and case interpretations will likely develop and change to address these issues.

Q: Assuming my buyer is beyond their inspection windows, can my buyer (or the seller for that matter) cancel the contract due solely to COVID-19 concerns?
A: In our opinion, the answer at this time is no. The COVID-19 virus, at this time, does not rise to the level of a “Force Majeure” event that prevents a party from performing its obligations under the contract. The parties are still obliged to “exercise reasonable diligent effort”. Further, as long as services, insurance, required approvals essential to Closing (which may also include banking, funding, recording, etc.), are not disrupted, delayed, or prevented, then “the show must go on.”

Q; But I was told the Force Majeure provision of my contract absolutely allows my client to get out of the contract?
A: No one should be giving advice in absolutes at this point. The contract does not specifically speak to a pandemic (it could have), and settlement services are readily available at this time. The only thing holding back most parties right now are justifiable COVID-19 related concerns. But Force Majeure generally speaks to impossibility of performance, not a lack of desire to perform on the part of one or more parties due to COVID-19 related concerns.

Q: So then what is Force Majeure and when/how might it apply in connection with COVID-19 concerns?
A: This is an extremely complex question and one we urge you to speak with your real estate lawyer. Generally speaking, Force Majeure is an “Act of God” type event that essentially prevents performance (an admittedly overly simplistic, if not incomplete explanation of the concept). If such an event occurs, then most standard contracts provide for a mechanism to extend the closing date automatically for a period of up to 30 days. Whether COVID-19 gets to the point that it might be considered a Force Majeure event is anybody’s guess, and it is entirely possible that the courts will need to make that decision.

Q: Would a positive test or mandatory quarantine qualify as a Force Majeure event?
A: A positive test might if someone cannot physically complete their closing. A mandatory quarantine on the other hand might depend on the ability of the party to execute closing documents. This is uncharted territory and beware of anyone who provides definitive answers to these types of questions.

Q: Well, then can my client cancel the contract due to recent events pertaining to the stock market?
A: No. A parties’ decision to place and keep money in the stock market does not excuse performance, no matter how the market performs or why.

Q: Are closings still taking place?
A: Yes, but closings look a bit different than they did just a week ago. Most closing agents are taking the typical CDC recommended precautions, but some (such as BPE) are going even further. E-closings (to the extent possible) are being strongly encouraged (if not required), and in person closings have been streamlined to speed up the document signing process. Closing documents are now being pre-approved by buyers/sellers in advance of the closing, so the time spent in the closing room for document signing has been drastically reduced. So called “point and sign” closings are becoming more common for obvious reasons.

Q: Should I attend the closing?
A: Tough call. We recommend that you consult with your client and ask them if they want you to attend or not. If the closing agent has streamlined the document signing, the “closing” will be very quick (ideally less than a few minutes) and therefore there may be little need for your attendance at closing. Now of course you can always spend time with your clients pre-closing going through anything you feel is appropriate to discuss with them. The exchange of keys, documents, remotes, and other items can be made outside of the closing if you elect not to attend for health or other considerations.

Q: Should I use the new FAR addendum that was just put out yesterday?
A: It depends on what you hope to accomplish. For new contracts, the FAR addendum addresses challenges in securing financing due to COVID-19 issues. It does not address the unavailability of a party due to COVID-19 issues. If you want to get in front of the possibility of the need to extend due to a person being unavailable due to COVID-19 issues, we urge you to review our blog on the subject last week and the proposed language we suggested you consider.

Q: Then, when should I use the FAR addendum?
A: Use it when you are looking to extend an existing contract’s deadlines, or if you have a financed deal and your buyer has concerns that COVID-19 issues could delay or prevent funding of their loan. Note that since the addendum forces you to pick a date, you should pick dates as far out as possible given the uncertainty of the current situation.

Q: What is RON and how can RON help to close my transactions.
A: RON is remote online notarization. RON was passed and went into effect early this year, but the rules to implement RON by the legislature were not promulgated. That has since changed, and many closing agents (including BPE) are moving rapidly to implement RON into their closing process (which would effectively eliminate the need for a party to physically attend a closing). To minimize the chances that your client’s closing might be interrupted, you should ask your closing agent (a) if they are cloud based and able to work remotely, (b) whether they e-record documents, and (c) when they will be in a position to implement RON to facilitate remote closings.

We know you have more questions, and it is likely that the answers to these questions may have raised even more questions. For this reason, we cannot emphasize enough how important it is for you to have your real estate lawyer assist you and your clients in navigating through these unique times.

Berlin Patten Ebling, PLLC

This communication is not intended to establish an attorney client 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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