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Sellers Beware: 33 Buyer Outs

June 9, 2020
By: Amelia Scherba

33 Buyer Outs

Here are the 33 Buyer outs that all Sellers should be aware of:

#1: TITLE COMMITMENT

The title company has 20 days after receipt of the contract to furnish to the buyer with a Commitment for Title Insurance and the Exception Documents, although this time will automatically extend for 15 days or 3 days before the closing date, whichever is earlier.

If the seller cannot deliver the Commitment and Exception Documents within the prescribed time, the buyer may terminate and the earnest money will be refunded to the buyer.

#2: OBJECTIONS

The buyer can review Title Commitment and Survey within the time prescribed.

If there is a problem that would prevent conveyance, the seller gets an automatic extension of 15 days beyond the close date to cure.

It could be a survey issue, such as a flood zoning, that could be cured with an Elevation Certificate.

Or, something could show up on the Title Commitment, such as liens that need to be cleared.

If the seller is unable to cure the problems within 15 days without expense, the buyer may cancel the contract and receive the earnest money back.

#3 & 4: SELLER’S DISCLOSURE NOTICE

#3 – If the buyer never receives the notice, they can back out at any time and get their earnest money back.

#4 – Even if the seller delivers the notice within the written time frame, the contract gives the buyer the option to back out of the contract for any reason for up to 7 days after they receive it.

#5 & 6: LENDER REQUIRED REPAIRS AND TREATMENTS

#5 – If the parties do not agree to pay for the lender required repairs or treatments, the contract will terminate and the earnest money will be refunded to the buyer.

#6 – If the cost of lender required repairs and treatments exceeds 5% of the sales price, the buyer may terminate the contract and be refunded the earnest money.

#7: CLOSING – DELIVERY OF GENERAL WARRANTY DEED

The buyer may refuse to close if the seller cannot deliver a general warranty deed, but only a special warranty deed.

Most foreclosed properties are transferred with a special warranty deed, which does not guarantee clear title for the entire life of the property, just for the time the trustee held it after the bank’s foreclosure.

Once that chain of title guarantee, or “warranty” has been broken, most title companies will not revert back to the general warranty as it exposes them to title problems in the future.

If you are the listing agent, you can close this loophole (if your seller has a special warranty deed) by indicating in Special Provisions that the seller will deliver a special warranty deed.

Foreclosure addenda will include this language.

#8: CASUALTY LOSS

If any part of the property is damaged or destroyed by fire or another casualty after the contract effective date, the seller shall restore the property to its previous condition as soon as reasonably possible, but in any event by the Closing Date.

If the seller fails to do so due to factors beyond the seller’s control, the buyer may terminate and the earnest money will be refunded to the buyer.

The buyer may also extend up to 15 days, or accept damaged property and insurance proceeds if allowed by the insurance carrier.

#9: TERMINATION OPTION

 If the buyer gives notice of termination within the option period the earnest money will be refunded to the buyer.

#10, 11 & 12: THIRD-PARTY FINANCING ADDENDUM

#10 – Buyer Approval – The addendum describes the lender financing, and gives a specific time limit for the buyer to receive loan approval. Notice of denial must be made within the time prescribed, and the earnest money will be refunded to the buyer.

#11 – Property Approval – Property must satisfy the lenders underwriting requirements, including but not limited to appraisal, insurability, and lender required repairs. If Property Approval is not obtained, the buyer may give notice to the seller prior to closing and the earnest money will be refunded to the buyer.

#12 – FHA/VA Required Provision – The buyer shall not be obligated to purchase the property if the appraised value is lower than the sales price. You MUST insert the sales price, not the loan amount. The buyer will be entitled to a refund of earnest money.

#13 – 19: MEMBERSHIP IN PROPERTY OWNERS ASSOCIATION

Subdivision Information

#13 – If the seller delivers Subdivision Information to the buyer, the buyer has 3 days to terminate after receipt, or prior to closing, and the earnest money will be refunded.

#14 – If the seller does NOT deliver Subdivision Information to the buyer, the buyer may terminate and the earnest money will be refunded.

#15 – If the buyer obtains Subdivision Information, the buyer has 3 days to terminate after receipt, or prior to closing, and the earnest money will be refunded.

#16 – If the buyer is not able to obtain Subdivision Information, the buyer may terminate and the earnest money will be refunded.

#17 – If the seller fails to deliver an updated Resale Certificate during the time allowed, the buyer may terminate and the earnest money will be refunded.

Material Changes

#18 – If any of the Subdivision Information provided was not true, the buyer may terminate and the earnest money will be refunded.

#19 – If any material adverse change in the Subdivision Information occurs before closing, the buyer may terminate and the earnest money will be refunded.

#20: SELLER’S DISCLOSURE OF LEAD-BASED PAINT

This includes a provision for the buyer to have the property inspected for lead, and to get out of the contract and have their earnest money refunded within 14 days if lead is found.

#21, 22, & 23 ENVIRONMENTAL MATTERS (TREC 28-2)

#21 – Environmental Assessment Report

#22 – Threatened or Endangered Species Report

#23 – Wetlands Report

Within the time prescribed, the buyer may provide the seller copies of any reports noted above that adversely affect the property, and a notice of termination. Earnest money will be refunded to the buyer.

#24 & 25: SALE OF OTHER PROPERTY BY BUYER

#24 – If the buyer’s property is not sold by the prescribed date, or the contingency is not waived by the buyer, the contract automatically terminates and earnest money is refunded to the buyer.

#25 – If the seller notifies the buyer of acceptance of another written offer, and the buyer cannot waive contingency, the contract will automatically terminate and the earnest money will be refunded to the buyer.

#26 & 27: VA LOAN ASSUMPTIONS (TREC 12-3)

#26 – Release of the seller’s liability on loan to be assumed – If the seller’s liability from the lender is not obtained prior to closing, the contract will terminate and the earnest money will be refunded to the buyer.

#27 – Restoration of the seller’s entitlement for VA loan – If approval of the restoration of the seller’s VA entitlement is not approved by the closing date, the contract will terminate and the earnest money will be refunded to the buyer.

#28, 29 & 30: LOAN ASSUMPTION ADDENDUM

#28 – Credit Approval – If the seller determines that the buyer’s credit is not acceptable, the contract will terminate and the earnest money will be refunded to the buyer.

#29 – Loan Assumption Terms – Specifies the interest rate, assumption fees, and other loan terms. If there are any modifications to these, the buyer may terminate and the earnest money will be refunded to the buyer.

#30 – Consent of Noteholder – If the noteholder refuses to consent to the assumption, either party can terminate and the earnest money will be refunded to the buyer.

#31: SELLER FINANCING ADDENDUM

Buyer’s Credit Approval – If the seller determines that the buyer’s credit is not acceptable, the contract will terminate and the earnest money will be refunded to the buyer.

#32 & 33: SHORT SALE ADDENDUM

#32 – The seller has until the date prescribed to notify the buyer that Lienholder’s Consent and Agreement have been obtained, or the contract will terminate and the earnest money will be refunded to the buyer.

#33 – If Lienholder refuses or withdraws its Consent and Agreement prior to closing and funding, the contract will terminate and the earnest money will be refunded to the buyer.

 

 


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