Realtors, are you using the most current contingencies and language in your Offers? Do you know the most current Fannie Mae/FHA condo rules and how they will impact your condo sale? Want to know the latest on the U.S. Bank v. Ibanez ruling and the foreclosure title mess? How can you avoid last minute crises? All these questions and more will be answered in our upcoming free webinar.
One Hour Complementary Webinar: An Ounce of Prevention Is Worth A Pound Of Cure: Strategies & Teamwork To Avoid Deal Disasters
November 1, 2011, starting at 11:00am EST.
Presented by: Richard Vetstein, Esq. and Marc Canner, Esq. of TitleHub Closing Services and Brian Cavanaugh of MetLife Loans.
Caveat Emptor is an old common law rule which means “Let the Buyer Beware.” In plain English, it means that home buyers are on their own when it comes to the condition of the property. If there is a defect of any kind, it becomes the buyer’s problem, not the seller’s.
Most home buyers are unaware that in Massachusetts, with a few exceptions, the rule of Buyer Beware is still alive and well. That is why in the vast majority of transactions, buyers choose to have the property inspected by a licensed home inspector. And it’s also why there is a contingency in the offer or purchase and sale agreement giving the buyer the right to opt out of the agreement if there are serious issues.
But what happens if the home inspector misses a broken A/C unit, or the sellers concealed that the basement flooded, or the Realtor didn’t tell the buyers there was a Level 3 sex offender next door? These are all thorny disclosure issues.
Private Sellers: No Duty to Disclose
A private seller has no legal duty in Massachusetts to disclose anything about the property (except for the presence of lead paint). Yes, you read that correctly. He doesn’t have to say boo. Will that assist the buyer in selecting the home for purchase? Maybe not. But if the basement floods, the seller does not have to say anything about it.
A seller, however, cannot affirmative misrepresent a material fact about the property. That is, if the seller is asked a direct question, such as “has the basement ever flooded?” and he answers “never” when it has, he has lied and can be held liable for that.
Most agents will insist that Sellers fill out a Statement of Property Condition (see below) which will fully disclose just about every conceivable condition of the premises. However, the standard form does contain small print language purporting to limit the agent and seller from disclosure liability.
Real Estate Agents: Heightened Duty
Under Massachusetts consumer protection regulations governing real estate brokers, a broker must disclose to a buyer “any fact, the disclosure of which may have influenced the buyer or prospective buyer not to enter into the transaction.” This is somewhat of a subjective standard; what may matter to one buyer may not matter to another. If a broker is asked a direct question about the property, she must answer truthfully, accurately, and completely to the best of her knowledge. Further, a broker cannot actively avoid discovering the details of a suspected problem or tell half-truths. This is why most Realtors err on the side of full disclosure, as suggested in Bill Gassett’s blog.
As for that Level 3 sex offender living next door, I would advise the listing agent to disclose that fact. The Massachusetts Supreme Judicial Court has held that off-site physical conditions may require disclosure if the conditions are unknown and not readily observable by the buyer and if the existence of those conditions is of sufficient materiality to affect the habitability, use, or enjoyment of the property and, therefore, render the property substantially less desirable or valuable to the objectively reasonable buyer. I think a dangerous sex offender would be something a buyer would want to know about, wouldn’t you?
Home Inspectors
In 1999, Massachusetts joined a growing number of states that require home inspectors to be licensed. There is now a state Board of Registration of Home Inspectors. Home inspectors are now required to carry at least $250,000 of errors and omissions insurance. The board is empowered to suspend licensed home inspectors for violations of the statute or regulations and to impose civil penalties on persons purporting to conduct a home inspection without the required license.
A home inspector is one of the most important referrals your Realtor will give you. Most agents know which inspectors are great and which are terrible. If you are the unfortunate victim of an incompetent home inspectors, they can be sued civilly for breach of contract or negligence.
Are Electronic Contracts And E-Signatures On The Way?
Catching my eye this week was a recent New York Times article discussing a New York state court opinion regarding the legal effect of e-mail in real estate contracts. The ruling reaffirmed that e-mail may carry the same weight as traditional ink on paper contracts.
It made me think about the future of real estate contracts and how they will look. Will the common practice of executing four original purchase and sale agreements be replaced by some type of electronic PDF document with electronic signatures? (I hope so. They are in the West Coast now). Same for the standard Offer to Purchase? What about the stack of disclosures and loan documents signed at closings? (There must be a better way). And mortgages are already being electronically recorded in several Massachusetts counties.
I wonder how closings will be conducted in 2021?
Congress and state legislatures have already laid the groundwork for electronic real estate contracts and e-signatures. In 2000, Congress enacted the E-SIGN law which validated certain contracts in electronic form and electronic signatures. In 2004, Massachusetts adopted the Uniform Electronic Transactions Act (UETA), which is essentially updates the E-SIGN law. Lawmakers designed UETA and E-Sign to recognize that “a signature, contract, or other record relating to a transaction may not be denied legal effect, validity, or enforceability solely because it is in electronic form.” The Massachusetts UETA exempts several types of contracts and disclosures (e.g., wills), but not real estate contracts.
Old Traditions & The Statute of Frauds
But old traditions are hard to change, especially when it involves real estate. As every first year law student learns, Massachusetts real estate contracts are governed by the Statute of Frauds. This doctrine, originated in old English common law, says that any contract for the sale of real estate must be in writing and “signed by the party to be charged therewith.” One can make a compelling argument that secured electronic contracts and signatures serve the purpose of the Statute of Frauds by providing some objective evidence, other than word of mouth, that there really has been a binding deal.
I haven’t found any cases dealing with the interplay between the UETA and the Statute of Frauds. And there’s something about that “wet” ink signature on real paper that gives people security and comfort. The same is true for our beloved Greater Boston Real Estate Board standard form Offer and P&S. We’ll have to see how the issue plays out in the courts.
But if you can purchase a Ferrari online through E-Bay, why can’t you buy a home using a secure electronic contract? How do you think technology will affect real estate in the future? What would you like to see change in the industry?
A lis pendens is Latin for “a suit pending.” Under the Massachusetts lis pendens law, a lis pendens is a notice endorsed by a judge certifying that there is litigation pending involving the title or occupancy rights to a property. Where real estate deals go sour, a court will often issue a lis pendens where a buyer seeks “specific performance” of a real estate contract in order to force a seller to go through with a transaction. Lis pendens are also common in other real estate cases such as boundary, title, zoning, and ownership disputes. The lis pendens is recorded at the registry of deeds against the property and its owner(s), creating a serious cloud on the title to the affected property. A lis pendens will, in many cases, effectively prevent the owner from selling the property until the claim is resolved–thus, earning its well-deserved reputation as dangerous arrow in a real estate litigator’s quiver.
Heavy Ammunition For Buyers
Since the Massachusetts Supreme Judicial Court held in 1998 that the standard Greater Boston Real Estate form Offer To Purchase is a binding contract, buyers have used the lis pendens with great success against sellers who unjustifiably try to back out of Offers to Purchase and Purchase and Sale Agreements. Aggressive buyer attorneys would often obtain a lis pendens without prior notice to the seller (called ex parte relief), and this would give buyers a huge advantage and effectively derail any pending sale of the property until the judge resolved the claim.
Recent Changes To The Law
In response to complaints that litigants were abusing the law with frivolous claims for lis pendens’, lawmakers amended the law in 2003. Now, claimants seeking ex parte relief must show there is a clear danger that the seller, if notified in advance, will convey, encumber, damage or destroy the property. Sellers also have a new remedy to stop frivolous claims: a “special motion to dismiss” which carries with it an award of attorneys’ fees and costs. The playing field is a bit more leveled now, yet the lis pendens remains a powerful tool for real estate attorneys.
Dealing With A Lis Pendens
Dealing with a meritorious lis pendens remains very difficult. Standard owner’s title insurance policies do not insure against them. Further, most title companies hesitate to affirmatively insure a lis pendens as they would effectively be underwriting the ultimate success of the lawsuit. Sometimes, however, coverage can be obtained for an additional premium and/or with some form of indemnification or security. In the absence of insurance, a lis pendens will remain a cloud on title until the claim is ultimately resolved in the courts, which these days can take many years. Given the high cost of litigation, a financial settlement is often the only way to resolve the matter in a cost-effective manner.
As an experienced real estate litigator who has obtained and defended scores of lis pendens’, please contact me with any questions about a Massachusetts lis pendens.
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Richard D. Vetstein, Esq. is an experienced and creative Massachusetts real estate litigator who loves to help property owners defend their contract or property rights in court. Please contact him at [email protected] or 508-620-5352 for a no-obligation consultation.
As a real estate attorney, I always take the time to fully explain to our clients the intricacies of the Massachusetts Purchase and Sale Agreement.
The purchase and sale agreement is the governing contract between the Buyer and the Seller regarding the proposed property to purchase. Most Buyers submit an initial Offer to Purchase to a Seller, which spells out the terms of the contract. The purchase and sale agreement supersedes the offer, and can be thought of as the “long form” contract. At first blush, the purchase and sale agreement, like most legal documents, can be difficult to read and comprehend.
Deal Terms
First, like all contracts, the purchase and sale agreement sets out the terms of the deal. These terms primarily are taken from the offer. This includes the names of the parties, the legal description of the property (taken from the current deed), the purchase price, the mortgage commitment date, the closing date, any Seller credits, and any agreed upon fixtures that will remain with the property or be taken by the Seller.
Title and Deed
Second, the purchase and sale agreement deals with the title to the property and the deed. It lays out the framework for a conveyance (a real estate transfer) in Massachusetts. The agreement spells out that the Seller conveys the deed to the Buyer in return for consideration, then the deed is recorded and the Buyer becomes the owner of the property. However, in Massachusetts, once the deed is recorded at the proper Registry of Deeds, then any title issues “run with the land.” Thus, the new owner becomes responsible for any outstanding encumbrances or liens that were not properly discharged. In order to protect the Buyer, the purchase and sale agreement provides that the Seller must convey “good, clear and marketable” title. Acting as the buyer’s or lender’s counsel, or both, attorneys will review the title exam and work with the Seller’s attorney to clear any title issues, so that the buyer will receive a certification of title and an owner’s title insurance policy.
Seller Responsibilities
Third, the purchase and sale agreement lays out the responsibilities of the Seller. This includes maintaining insurance and upkeep on the property until closing, obtaining a smoke and carbon monoxide certificate at closing, paying the broker’s commission, obtaining a 6(d) certificate for a condominium, and requiring that the taxes be paid by Seller up until the closing date (through an adjustment to the HUD Settlement Statement). The agreement also provides that the Seller’s agent (either the realtor or the attorney) holds the buyer’s deposit in an escrow account.
Anything But “Standard”
There is a note of caution about the standard form Massachusetts purchase and sale agreement. The standard form provides several hidden advantages to a Seller, I’ve written about on this Blog. Thus, buyers must have an experienced attorney revise the agreement and flag those built in deficiencies. For example, if a Buyer were to default prior to closing, the standard form document provides no cap on the damages; a skilled attorney will know to cap the damages at the deposit. The same is true if a buyer loses his rate lock if there is a delay of the closing; a skilled attorney would use language to protect the buyer in this situation.
An experienced attorney will produce a Rider to the purchase and sale agreement that will have language that protects a Buyer’s deposit and provides an aggressive layer of due diligence. For example, if the Buyer is purchasing a condominium, the Rider should have the Seller make representations that the association is not contemplating any special assessments, there are no pending lawsuits against the association, and the budget is in good order. Other issues include seller repairs, septic system/Title V compliance, radon gas, UFFI insulation, lead paint, and buyers’ access to the property while it is under agreement.
Since the P&S is “anything but standard,” an experienced real estate attorney who review and negotiates the document will certainly add value to the closing process.
Today is the deadline for buyers to have a “binding contract” for the $8,000 Home Buyer Tax Credit.
Under the IRS guidelines, Buyers must have a “binding contract” on or before April 30, 2010, and close on or before June 30, 2010. Buyers will need to attach to their 1040 tax returns a copy of the signed contract and the HUD-1 Settlement Statement for the closing.
Is a signed offer to purchase or signed purchase and sale agreement sufficient for the April 30 deadline? There’s been quite a bit of debate on this issue in Massachusetts and the rest of the country with a 2-step contract process. Unfortunately, there’s been no formal IRS guidance. There is case law that the standard form Greater Boston Real Estate Board Offer to Purchase is a binding agreement. But all offers are different, and some may have special contingencies (see, short sales), which may take it out of this case law rule. Buyers can eliminate the risk of having their credit disallowed by getting a purchase and sale agreement signed by today. You can always defer the home inspection until next week and make it a contingency in the purchase and sale agreement.
If buyers cannot sign a purchase and sale agreement by today and intend to submit a signed offer for the tax credit know that the IRS rules require the names of all parties on the “binding contract.” Make sure the names of the sellers and buyers are legible on the offer. Realtors, who customarily fill out the offer to purchase, typically address offers to the “owner of record.” Realtors: make sure you spell out the names of both buyers and sellers, get all the signatures, spell out the closing date for on or before June 30, 2010, and write legibly so the IRS can read it.
For all tax credit qualification issues, consult a tax attorney or CPA, and contact us to get your purchase and sale agreement done by Friday.
As we head to the April 30th deadline for the $8,000 Home Buyer Tax Credit, here’s a quick summary of the rules.
Buyers must be under contract on or before April 30, 2010, and close on or before June 30, 2010. Buyers will need to attach to their 1040 tax returns a copy of the signed purchase contract and HUD-1 Settlement Statement.
There’s been quite a bit of debate as to whether a signed offer to purchase or signed purchase and sale agreements is sufficient for the April 30 deadline. I’ve been erring on the side of caution by recommending getting the P&S signed by Friday, but some realtors and attorneys disagree and say that a signed offer is enough. I’d like to see some formal IRS guidance here. The IRS rules require the names of all parties on the “binding contract,” and the offer typically is addressed to “owner of record.” If Realtors are going to use the offer, ensure that all parties names are legibly shown on the offer. Bottom line: consult a tax attorney or CPA on tax credit issues, and contact us to get your purchase and sale agreement done by Friday.
The maximum credit amount remains at $8,000 for a first-time homebuyer –– that is, a buyer who has not owned a primary residence during the three years up to the date of purchase.
The new law also provides a “long-time resident” credit of up to $6,500 to others who do not qualify as “first-time home buyers.” To qualify this way, a buyer must have owned and used the same home as a principal or primary residence for at least five consecutive years of the eight-year period ending on the date of purchase of a new home as a primary residence.
The new law raises the income limits for people who purchase homes after Nov. 6. The full credit will be available to taxpayers with modified adjusted gross incomes (MAGI) up to $125,000, or $225,000 for joint filers. Those with MAGI between $125,000 and $145,000, or $225,000 and $245,000 for joint filers, are eligible for a reduced credit. Those with higher incomes do not qualify.
New Requirements
Several new restrictions on purchases that occur after Nov. 6 go into effect with the new law:
Dependents are not eligible to claim the credit.
No credit is available if the purchase price of a home is more than $800,000.
A purchaser must be at least 18 years of age on the date of purchase.
For all qualifying purchases in 2010, taxpayers have the option of claiming the credit on either their 2009 or 2010 tax returns.
A new version of Form 5405, First-Time Homebuyer Credit, is now available here. A taxpayer who purchases a home after Nov. 6 must use this new version of the form to claim the credit. Likewise, taxpayers claiming the credit on their 2009 returns, no matter when the house was purchased, must also use the new version of Form 5405. Taxpayers who claim the credit on their 2009 tax return will not be able to file electronically but instead will need to file a paper return.
Here’s an IRS produced video outlining the program.
As we head towards a major deadline for the popular $8,000 home buyer tax credit, we’ve been asked a number of times by real estate agents and mortgage professionals whether buyers need a signed offer to purchase or signed purchase and sale agreement by the upcoming April 30th tax credit deadline. We’re advising that buyers need a signed purchase and sale agreement by the deadline, as explained below.
In Massachusetts, there is a two-part system for real estate contracts. The parties first sign an Offer To Purchase, then about 2 weeks later, they sign a more comprehensive Purchase and Sale Agreement. Under the Massachusetts case of McCarthy v. Tobin, a signed standard form Greater Boston Real Estate Board Offer To Purchase may be considered a valid and binding contract even though a purchase and sale agreement must be signed at a later date. However each transaction/offer is unique and may have contingencies or future considerations which take it out of this case law rule. And remember, most of these types of cases are litigated in the courts, so it’s really fact-specific.
Under IRS rules, to claim the $8,000 credit, the buyer will have to attach to their tax return a copy of the “binding contract” showing an execution date on or before April 30, 2010. We just don’t know whether the IRS will interpret a signed Offer To Purchase as a “binding contract.” There is no question a signed Purchase and Sale Agreement is sufficient. However, there’s a risk that the IRS could reject reliance on a signed Offer to Purchase or it could delay qualification for the credit. This is a new rule so we just don’t know how the IRS will interpret it, and that raises a risk.
Accordingly, the prudent approach is to have all buyers claiming the credit sign a purchase and sale agreement by April 30th. That is what we are advising our buyers, their Realtors and loan officers. We are also now inserting a special tax credit provision in purchase and sale agreements protecting the buyer’s eligibility for the credit.
Of course, our office is well-equipped to get a Purchase and Sale Agreement completed and signed by the Friday deadline. We’ll be working around the clock this week for our buyers and sellers! Contact us at 508-620-5352 or by email.
This week, a very interesting decision involving the negotiation of a residential purchase and sale agreement came down from the Massachusetts Appeals Court in Coviello v. Richardson. Click here to view the decision. The case highlights the need for realtors and real estate attorneys to be proactive with respect to mortgage contingencies and requests for extensions.
The Facts
In the case, on February 12, 2008, buyer (Coviello) and seller (Richardson) signed the standard form Offer to Purchase, which provided that a Purchase and Sale Agreement would be executed by 5:00pm on February 26th. Under the mortgage contingency clause of the offer, which gives the buyer the right to cancel if she cannot obtain financing, the buyer was required to secure a firm mortgage commitment by February 29th. The realtor, who prepared the offer, made the first mistake here: requiring her client, the buyer, to obtain a firm mortgage commitment not even 2 weeks after the parties signed the offer. This was and remains completely unrealistic.
Predictably, the buyer and her broker had immediate concerns that they would be unable to meet the mortgage commitment deadline. The broker asked the buyer’s attorney, Scott Kriss, if he would ask the seller to agree to extend the commitment deadline for an additional week. According to the decision, the request was not immediately conveyed to the seller.
Two hours before the 5:00pm deadline to sign the purchase and sale agreement, Attorney Kriss sent an email to the seller’s attorney, Alan Sharaf, requesting the extension. The seller, who was dealing with a high-risk pregnancy, refused to extend the deadline. No agreement could be reached, and there was no tender or signing of the purchase and sale agreement. (It does appear that the pregnant seller got “cold feet” and backed out of the deal–the request for a one week extension is eminently reasonable and wouldn’t have exposed her to any significant risk).
The buyer sued, claiming that the seller’s refusal to agree to the extension was a breach of the deal. The Land Court initially ruled in favor of the buyer, but the Appeals Court overruled the decision in favor of the seller, holding that a jury would have to decide whether the seller repudiated the contract or would have proceeded with the original terms. The case will be heading to trial.
Take Away
In our opinion, the lesson for realtors and attorneys from this case is (1) make the mortgage contingency dates workable in the offer, and (b) if you are asking for an extension at the 11th hour, protect your buyer in case the seller refuses to agree.
First, the realtor should have used a more realistic mortgage contingency deadline. In the current underwriting environment, realtors should allow at least 30-45 from the signing of the offer for a mortgage commitment.
Second, in our opinion, the buyer’s attorney’s apparent delay in asking for the extension until the 11th hour certainly didn’t help the situation. He could have protected the buyer a lot more had he coupled the request for the extension of the mortgage commitment deadline with either (a) notice that if the seller would not agree, the buyer would opt out of the deal entirely, or (b) a tender of the purchase and sale agreement with the original deadlines (assuming the buyer would take on the risk of being unable to make the deadlines). This would have “boxed in” the seller to either agree to the extension or go through the deal, essentially calling her bluff. At least it would have enabled the buyer to have been in a much better position for litigation because now the fight is over whether the seller would have gone through the original deal. Granted, it appears that the pregnant seller had already made up her mind that she wasn’t going through the deal, no matter the reason.
To the credit of the realtor and attorneys involved, it’s much easier for me to play Monday morning quarterback.
A short sale is special type of real estate transaction between a homeowner, his mortgage holder, and a third party buyer. In a short sale, the homeowner’s mortgage company agrees to take less than what is owed on the outstanding mortgage, thereby being left “short.” In some but not all cases, the lender will agree to wipe out the entire debt. Many people believe that short sales offer bargain basement prices, but lenders will do their best to get as close to fair market value as possible so as to minimize their loss.
Short sales are a unique type of transaction and far different from the typical transaction between parties of equal bargaining power. Likewise, the legal aspects of a short sale are unique.
Short Sale Approval Required
The most important legal issue in a Massachusetts short sale is to recognize that the deal doesn’t go through unless the seller’s lender(s) approve the short sale. Thus, the offer and purchase and sale agreement must reflect that the buyer’s and seller’s obligation to close is contingent upon the lender’s approval of the short sale.
Sometimes, sellers need to obtain short sale approval from not one, but two, lenders with mortgages on the property. Buyers and their agents should research the title ahead of time because a second lienholder can often muck up an otherwise promising short sale.
The Waiting Game
Another significant issue is timing. The typical time-line on a short sale can vary greatly from 45 days to 6 months or more from accepted offer to closing. The approval of a short sale and the negotiation for the reduction in the mortgage balance can be a time-consuming process. There is a long, but manageable, list of documents that must be submitted by the seller/homeowner before a lender will approve a short sale.
Inspections and Financing
Short sale transactions don’t follow the typical process of the “normal” transaction, especially with financing and inspection contingencies. Due to the often lengthy wait for short sale approval, most buyers are reluctant to lock in mortgage financing and otherwise spend to secure a firm loan commitment. The same is true for home inspections. Buyers argue why should I pay for a home inspection if the deal may not even happen? Sellers and their agents often feel that buyers should put a little “skin in the game” and do a home inspection early on. These issues will be negotiated from deal to deal.
When I represent buyers of short sales, I insist that the the closing, inspection, and mortgage contingency deadlines dates in the offer and purchase and sale agreement start “x” days from the short sale approval. There should also be a end date for obtaining short sale approval and protection for the buyer’s rate lock so the agreement is not left completely open-ended and delays won’t adversely affect the buyer’s financing.
Short Sale Addendum/Rider
The deal agreements must be tailored quite specifically to a short sale transaction. Experienced Massachusetts short sale attorneys (like us!) always use a customized short sale addendum/rider. A form, however, is no substitute for an experienced short sale attorney and guidance through the complicated short sale process.
Buyers Bring Your Tools
Also, cash strapped sellers are usually unwilling to do any repairs in a short sale situation. Inspections may be performed and “outs” may be negotiated for significant repairs, but most buyers must ultimately accept the property “as is.”
Given the unique nature of the Massachusetts short sale transaction, the sage advice is to work with ethical Realtors and short sale attorneys who have significant experience with short sale transactions.
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.
Richard D. Vetstein, Esq. is regarded as one of the leading real estate attorneys in Massachusetts. With 25 years in practice, he was voted a "Super Lawyer," a "Top Lawyer" by Boston Magazine and "Best of Metrowest." For Rich's professional biography, click here. If you are interested in hiring Rich or have a legal question, email or call him at [email protected] or 508-620-5352.
Realtors, are you using the most current contingencies and language in your Offers? Do you know the most current Fannie Mae/FHA condo rules and how they will impact your condo sale? Want to know the latest on the U.S. Bank v. Ibanez ruling and the foreclosure title mess? How can you avoid last minute crises? All these questions and more will be answered in our upcoming free webinar.
Overview: Lis Pendens, Latin for “A Suit Pending”
