Knowing and understanding the importance of critical dates in a contract are necessary to avoid risk and liability — not only to a buyer, but to the agent and the brokerage. In this blog, we address the most commonly seen risks and potential liability when writing a 2-week contract in a real-life example recently closed by MSC Title.
Closing Timelines: The Unexpected Gotchas and Risks
In this example, our contract has an effective date of 5/19/19 with a closing date of 5/31/19, which gives us 9 business days to close (provided the agent turns the contract in that day, which often does not happen, creating further risk with the prescribed time frames dictated in the contract.) This is a cash as-is contract. Here are the problems with this timeframe.
Delivery of the title commitment defaulted to 5 calendar days prior to the closing. We have several problems here.
- The title commitment is taking at least 5-7 business days.
- We could not deliver the title commitment within the prescribed time frame (5 days prior to closing).
- This provides the buyer with an opportunity to get out of the contract for non-delivery.
Under this contract, the buyer has a 12-day inspection period. Municipal Lien searches are reliant upon municipalities and governmental agencies who are often understaffed. The problems here:
- Lien searches are taking 10 business not calendar days. This is after the inspection period. As a result, if the search reveals open permits, the buyer must accept the property as-is and deal with those permits, which could entail thousands of dollars to remedy and will create marketability issues if they do not remedy those open permits.
- If the buyer decides to walk from the contract after reviewing the search, they could be subject to losing their deposit.
- The agent could be liable and open themselves up to a lawsuit.
Our contract is for a condominium. The condo application timeframe defaults to the buyer applying to the association within 5 days of the effective date. Under this contract, the buyer did not make an application within the prescribed timeframe. Approval of the buyer can take 10-15 business days after submission of the application to be approved. Problems here:
- We cannot close without approval.
- The buyer could be held in default under the contract for not applying to the association as prescribed.
- The agent could be liable for failure to ensure buyer applied to the association within the prescribed timeframe.
- Estoppels. These are taking 10 business days minimum and will not be sent prior to the association approving buyer and we cannot close without an estoppel.
Typical Timeframes for Services
Below are the typical timeframes required prior to closing once the contract is turned in. If you delay turning in a contract, add a day for every day it’s delayed to each number:
Title Commitment – 5-7 BUSINESS days or 10 calendar days
Municipal Lien Search – 10-12 BUSINESS or 17 calendar days
Surveys – 10 BUSINESS days or 15 calendar days
Association Approvals – 10-15 BUSINESS or 20 calendar days
Estoppels – 10-15 BUSINESS or 20 calendar days
(In some cases a RUSH estoppel can be ordered for an additional cost of up to $100 but not all associations offer this.)
Writing 2- and 3-week contracts is a not only a disservice to the customers (especially when so many are not here for the closing), it also presents great risks to your customer, you and the company. You should write a minimum of 30 days for closing on a cash contract these days whether a lot, condo or single-family home. Remember a seller does not have to grant an extension which could leave your buyer purchasing a property not knowing what potential problems they are inheriting (i.e. if a survey doesn’t come in time) or worse yet, forfeiture of their deposit and legal action against you. Let us know when you turn in the contract that the parties wish to close sooner and we will work towards an earlier date. Remember, even if you write a 30-day contract that is a maximum of 20 business days all of these items must be completed and delivered on time (assuming there are no holidays are in the month).
This is intended as information only and should not be construed as legal advice nor opinion. Please consult an attorney of your choice for legal advice with regard to this information.
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