Overview of “Standard” Changes to the GBREB Form Purchase and Sale Agreement
Missing mortgage discharges, problematic probates, “Ibanez” foreclosure issues and other title defects are always an unwelcome surprise to a seller, their Realtor and attorney. But they are unfortunately a common part of life in the real estate conveyancing world. The “standard” purchase and sale agreement form commonly used by Realtors and attorneys (Greater Boston Real Estate Board) provides for what happens in a transaction if a title defect is discovered and cannot be cleared quickly.
The GBREB form, paragraph 10, which is still in widespread use, provides as follows:
If the SELLER shall be unable to give title or to make conveyance, or to deliver possession of the premises, all as herein stipulated, or if at the time of the deed the premises do not conform with the provisions hereof, then any payments made under this agreement shall forthwith be refunded and all other obligations of the parties hereto shall cease, and this agreement shall be void without recourse to the parties hereto, unless the SELLER elects to use reasonable efforts to remove any defects in title, or to deliver possession as provided herein, or to make the said premises conform to the provisions hereof, as the case may be, in which event the Seller shall given written notice thereof to the Buyer at or before the time for performance hereunder, and thereupon the time for performance hereof shall be extended for a period of thirty days.
The standard provision is, unfortunately, outdated and problematic. Accordingly, experienced Realtors and attorneys are taught to modify this provision from the outset as follows:
If the SELLER shall be unable to give title or to make conveyance, or to deliver possession of the premises, all as herein stipulated, or if at the time of the deed the premises do not conform with the provisions hereof,
then any payments made under this agreement shall forthwith be refunded and all other obligations of the parties hereto shall cease, and this agreement shall be void without recourse to the parties hereto, unlessthen the SELLER shallelect touse reasonable efforts to remove any defects in title, or to deliver possession as provided herein, or to make the said premises conform to the provisions hereof, as the case may be, in which event the Seller shall given written notice thereof to the Buyer at or before the time for performance hereunder, and thereupon the time for performance hereof shall be extended for a period of thirty days.
These standard modifications ensure that the Seller is initially responsible for clearing any title defects and gives them 30 days in which to do so. If the Seller cannot clear the title defect within 30 days, then both parties have the option of terminating the deal and all deposits must be returned.
Limiting Seller’s Financial Exposure
To limit the seller’s out of pocket expenses to clear title defects, real estate attorneys representing the seller will often insert language such as this at the end of paragraph 10:
Reasonable efforts shall be defined as the Seller’s expenditure of no more than $________, exclusive of all voluntary encumbrances which secure the payment of money which Seller shall be obligated to remove.
The dollar amount is typically anywhere between $1,000 – $4000 depending on the purchase price.
Protecting The Buyer
On the buyer side, what happens if during the 30 day extension cure period, the buyer’s rate lock expires and interest rates are floating up (like now)? Experienced buyer attorneys will often insert the following language in their riders:
Notwithstanding anything to the contrary contained in this Agreement, if SELLER extends this Agreement to perfect title or make the Premises conform as provided in Paragraph 10, and if BUYER’S mortgage commitment or rate lock would expire prior to the expiration of said extension, then such extension shall continue, at BUYER’S option, only until the date of expiration of BUYER’S mortgage commitment or rate lock. BUYER may elect, at its sole option, to obtain an extension of its mortgage commitment or rate lock or the Seller may elect to pay for same.
This language will ensure that the buyer doesn’t wind up floating up the interest rate river with an untimely rate lock expiration. This situation has come up rather frequently over the last several months as interest rates have increased dramatically.
This is just one, albeit a very important, part of how an experienced real estate attorney works up the purchase and sale agreement. I will do some more posts on other aspects of the P&S Agreement. Stay tuned!
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Richard D. Vetstein, Esq. is a Massachusetts real estate closing attorney with offices in Framingham and Needham, MA. He can be reached at [email protected] or 508.620.5352.
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