Massachusetts home inspection contingency

offer-to-pur3

Update (6/10/13): Battle of the Forms! Mass. Ass’n of Realtors vs. Greater Boston Bd. of Realtors Standard Form Offers

Update (10/3/15) New TRID Addendum

The Standard Massachusetts Offer To Purchase

The first step in purchasing or selling Massachusetts residential real estate is the presentation and acceptance of an Offer To Purchase. Most often, the buyers’ real estate broker prepares the offer to purchase on a pre-printed Greater Boston Real Estate Board standard form and presents it to the seller for review, modification, and acceptance. Attorneys are often not involved in the offer stage. However, in light of the legal significance of a signed offer and recent litigation over offers, buyers (and their brokers) and sellers may be wise to consult an attorney to review the offer.

An Accepted & Signed Offer Is A Binding Contract

Many sellers (and their brokers) are under the misconception that the offer to purchase is merely a formality, and that a binding contract is formed only when the parties sign the more extensive purchase and sale agreement. This is not true. Under established Massachusetts case law, a signed standard form offer to purchase is a binding and enforceable contract to sell real estate even if the offer is subject to the signing of a more comprehensive purchase and sale agreement. So if a seller signs and accepts an offer and later gets a better deal, I wouldn’t advise the seller to attempt to walk away from the original deal. Armed with a signed offer, buyers can sue for specific performance, and record a “lis pendens,” or notice of claim, in the registry of deeds against the property which will effectively prevent its sale until the litigation is resolved. I’ve handled many of these types of cases, and buyers definitely have the upper hand given the current state of the law.

There have also been recent court rulings holding that both email and text may constitute an enforceable contract even where no formal offer has been signed by both parties.

In some cases, the seller may not desire to be contractually bound by the acceptance of an offer to purchase while their property is taken off the market. In that case, safe harbor language can be drafted to specify the limited nature of the obligations created by the accepted offer. This is rather unusual, however, in residential transactions.

Home Inspection & Mortgage Contingencies

With the offer to purchase, I always advise buyers and their brokers to use a standard form addendum to address such contingencies as mortgage financing, home inspection, radon, lead paint, and pests. The home inspection and related tests are typically completed before the purchase and sale agreement is signed and any inspection issues are dealt with in the purchase and sale agreement. If they are not, there is an inspection contingency added to the P&S. See my post on purchase and sales agreements for that discussion.

The mortgage contingency is likewise critical. With mortgage loans harder to underwrite and approve, we are seeing loan commitment deadlines extended out for at least 30-45 days from the signing of the purchase and sale agreement. Always consult your mortgage lender before making an offer to see how much time they will need to process and approval your loan. The loan commitment deadline is one, if not the most, important deadlines in the contract documents.

In order to help finance the acquisition of said premises, the BUYER shall apply for a conven­tional bank or other institutional mortgage loan of $[proposed loan amount] at prevailing rates, terms and conditions.  If despite the BUYER’S diligent efforts, a commitment for such a loan cannot be obtained on or before [30-45 days from signing of purchase-sale agreement], the BUYER may terminate this agreement by written notice to the SELLER in accordance with the term of the rider, prior to the expiration of such time, whereupon any payments made under this agreement shall be forthwith refunded and all other obligations of the parties hereto shall cease and this agreements shall be void without recourse to the parties hereto.  In no event will the BUYER be deemed to have used diligent efforts to obtain such commitment unless the BUYER submits a complete mortgage loan application conforming to the foregoing provisions on or before [2-5 business days from signing of purchase and sale agreement].

Any time the parties agree to an extension of any deadline in the offer (and the purchase and sale agreement for that matter) make sure it’s in writing.

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RDV-profile-picture.jpgRichard D. Vetstein, Esq. is an experienced Massachusetts real estate closing and conveyancing attorney and former outside counsel to a national title insurance company. Please contact him if you need legal assistance with your Massachusetts real estate transaction.

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Signing or not signing?The Massachusetts Purchase and Sale Agreement Is Anything But “Standard”

Home buyers sign a never ending pile of legal documents to purchase a home. But arguably the most important document in the entire transaction is the Massachusetts purchase and sale agreement. The purchase and sale agreement is signed after the Offer to Purchase is executed, and spells out the parties’ responsibilities during the interim period when the property is taken off the market and the closing.

Important Update: Please read our article on the new TRID Rules

In Massachusetts, the form most often used is the so-called standard form agreement supplied by the Greater Boston Real Estate Board or one modeled very closely to this form. (Due to copyright laws, we cannot embed the standard form agreement — contact my office if you need assistance with drafting a purchase and sale agreement). The “standard” form purchase and sale agreement is, however, far from standard, especially for buyers. In fact, the standard form is very much slanted in favor of the seller, and the playing field must be “leveled” to protect the buyer’s interests.

Click here to read our series of posts on the Massachusetts Purchase and Sale Agreement

This is why it’s imperative that home buyers and sellers alike retain a Massachusetts real estate attorney to modify the “standard” form purchase and sale agreement in order to best protect all parties’ rights and remedies, and customize the agreement to the particular aspects of the transaction. This is typically done through a “rider” to the purchase and sales agreement. Often, the buyers’ attorney and the sellers’ attorney will attached two different riders to the agreement.

I’ll outline a few common issues not addressed adequately in the “standard” purchase and sale agreement. (Most of these are from the buyer’s perspective).

Mortgage Contingency

The “standard” purchase and sale agreement does provide a basic mortgage contingency which gives the buyer the option of terminating the agreement if mortgage financing falls through. However, for a buyer, the more specific you are in terms of interest rate, points, name of lending institution and definition of “diligent efforts,” the better. Buyers’ counsel should specify that the buyer will not be required to apply to more than one institutional lender currently making mortgage loans of the type sought by the buyer and that the buyer may terminate the purchase and sale agreement unless the buyer obtains a firm, written commitment for a mortgage loan. Here is a sample rider provision:

MODIFICATION TO PARAGRAPH 26: Application to one such bank or mortgage lender by such date shall constitute “diligent efforts.”  If the written  loan commitment contains terms and conditions that are beyond BUYER’S reasonable ability to control or achieve, or if the commitment requires BUYER to encumber property other than the subject property, BUYER may terminate this agreement, whereupon any payments made under this agreement shall be forthwith refunded and all other obligations of the parties hereto shall cease and this agreement shall be void without recourse to the parties hereto.

Home Inspection/Repairs

Typically, buyers complete the home inspection process prior to the signing of the purchase and sale agreement, and any inspection contingency provision is deleted from the purchase and sale agreement. What happens if the inspection results are not ready before the P&S signing deadline or if the seller has agreed to perform repairs prior to the closing or give a credit at closing? In this case, a home inspection contingency clause should be added back to the agreement, and any seller repairs or closing credits should be meticulously detailed in the rider.

Septic Systems/Title VMassachusetts Septic Title V requirements for selling property

If the home is serviced by an on-site sewage disposal system otherwise known as a septic system, the Massachusetts Septic System Regulations known as Title V requires the inspection of the system within 2 years of the sale of the home. Failed septic systems can cost many thousands of dollars to repair or replace.  Thus, buyers would look to be released from the agreement if the septic system fails inspection.  Alternatively, buyers could be given the option to close if the seller can repair the septic system during an agreed upon time period, provided that the buyers do not lose their mortgage rate lock.

Radon Gas

Radon is a naturally occurring radioactive gas. The ground produces the gas through the normal decay of uranium and radium. As it decays, radon produces new radioactive elements called radon daughters or decay products which scientists have proven to cause lung cancer. Radon testing should be performed by buyers during the home inspection process. Elevated levels of radon (above 4.0 picoCuries per liter (pCi/l) can be treated through radon remediation systems. The purchase and sale agreement should provide for a radon testing contingency and the buyers’ ability to terminate the agreement if elevated radon levels are found, or the option of having the sellers pay for a radon remediation system.

Lead Paintmassachusetts lead paint law

Under the Massachusetts Lead Paint Law, buyers of property are entitled to have the property inspected for the presence of lead paint.  (Sellers are not required to remove lead paint in a sale situation). Because the abatement of lead paint can be costly, buyers typically look for a right to terminate the purchase and sale agreement if lead paint exists and the abatement/removal of it exceeds a certain dollar threshold. Here is an example of a provision added to the standard form:

LEAD PAINT.  Seller acknowledges that the Buyers have a child under six (6) years of age who will live in the premises.  In accordance with Massachusetts General Laws, Chapter 111, section 197A, as the premises was constructed prior to 1978, Buyer may have the premises inspected for the presence of lead paint which inspection shall be completed within ten (10) days after the execution of this Agreement, unless extended in writing by the parties.  If the inspection reveals the presence of lead paint, the abatement and/or removal of which will cost $2,000 or more, then Buyer may terminate this agreement, whereupon any payments made under this agreement shall be forthwith refunded and all other obligations of the parties hereto shall cease and this agreement shall be void without recourse to the parties hereto.  Any lead paint removal or abatement shall be Buyers’ responsibility.

Access

When my wife and I signed the Offer to Purchase on our house, she couldn’t wait to get in there with her tape measure, paint chips and fabric swatches. Oftentimes overlooked, but a cause of friction is buyers’ ability to access the house prior to the closing. To avoid such friction, an access clause should be added to the purchase and sale agreement giving the buyer reasonable access at reasonable time with advance notice to the sellers–it’s still their house after all.

These are just a few of the issues not adequately addressed by the “standard” form purchase and sale agreement. There are many more.

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Richard D. Vetstein, Esq. is a nationally recognized real estate attorney, and has handled thousands of Massachusetts real estate transactions. He can be reached via email at rvetstein@vetsteinlawgroup.com.

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