Q: Several real estate agents have told me that possession at time of closing is becoming the norm in the real estate business. If so, short of demanding $10,000 or so in escrow, how can you protect yourself?
In the past, I had a sale fall through when one of the buyers lost his job and the mortgage company backed out. I had already moved all furniture, etc., and I would have had a very difficult time selling an empty unit. The buyers had also requested some spackling on the walls where pictures were hung, which would have required repainting.
Is there any insurance or other product available to guard against this issue?
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A: If this were a commercial transaction, then perhaps a “business interruption” insurance coverage would be available. But since this is residential, I really don’t know of any such insurance. I suppose risk takers like Lloyds of London would take this on, but I suspect it would be very expensive.
Typically, when a buyer defaults, the seller has the following options.
Keep the earnest money deposit and sue for damages. Those would be the mortgage, insurance and real estate taxes that the seller has to pay during the interim between signing a new contract and closing, and any loss if the house subsequently sold for less than the first contract price.
Sue the buyer for specific performance. This is a legal action where you tell the judge that the buyer has money, can afford the house, but just had buyer’s remorse. Depending on the facts, a judge can issue an order demanding the buyer go to closing and buy the house under the contract he signed.
But litigation is time consuming, expensive and always uncertain. When I represent a seller, I always try to get as high an earnest money deposit as possible, and at least 10 percent of the purchase price. I want to make it clear that once all contingencies have been removed (such as financing and home inspection), if the buyer opts to walk, you will keep the deposit.
Did your buyer have a contingency for obtaining financing, and was that contingency still in effect? It may be that you may not even be able to keep the $10,000 deposit. You should immediately talk with a good real estate attorney in your area.
Q: I am buying a property for cash. I received a draft of the settlement statement from the title company, but there is no seller information. The seller, an attorney, says she does not want to provide her financial details to me. She apparently uses the title company and has a close working relationship with the title company agent, but there is a note to the previous owner that must be released in closing, plus a homeowner association delinquent assessment.
I told her I must have assurance that the note and the HOA lien are paid, which normally appear on the seller’s side of the settlement statement.
Can she legally prohibit the information from being shown to me on the title agent’s settlement statement? Doesn’t the statement have to be signed by the seller? On my previous purchase for cash, the settlement statement contained buyer and seller info, and both buyer and seller signed the document. The seller had a note outstanding.
A: If you were obtaining a mortgage loan, your lender would insist on having a settlement statement. Up until Oct. 2, it was called a HUD-1. Now it’s called closing disclosure. Since you are paying all cash, to my knowledge, there is no legal requirement you be given a copy of the seller’s side of the transaction. I think the seller should, at the very least, sign your settlement statement. And you must be provided proof from the title company that you have clean title and that the HOA assessment and any previous loans have been paid off. If you obtain an owner’s title insurance, this should be satisfactory.