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Weekly Q&As

Effect of Seller's delay in delivering an "unconditional" acceptance

Release Date: 05/23/2017

This email address is being protected from spambots. You need JavaScript enabled to view it., Martin & Gifford, PLLC

QUESTION: I am representing a buyer. We attached the Additional Provisions Addendum (Standard Form 2A11-T) to my client's offer and noted in that Addendum that, in the absence of unconditional acceptance being delivered to Buyer, the offer would expire today at noon. The listing agent called me before noon today and told me that her client had signed the contract but that she is holding off sending the signed contract to me because she has another interested buyer who has scheduled a second showing. If the listing agent sends me a signed contract after the deadline, but that contract was signed before the deadline, can my buyer get out of the contract if he chooses?

ANSWER: You have raised an interesting question. Paragraph 1(g) of the Offer to Purchase and Contract (Standard Form 2-T) states that the "Effective Date" of the Contract is the date that the last one of Buyer and Seller have signed the Contract and such signing is communicated to the party making the offer or counteroffer, as the case may be. Here, the Seller signed the Buyer's offer before the noon deadline, and the fact of that signing was also communicated to you prior to that deadline. These facts give the Seller an argument that the Contract was effective and that the Buyer is bound by its terms.

However, the fact that Seller did not communicate "unconditional" acceptance of the Buyer's offer prior to the noon deadline gives the Buyer what we believe is a stronger argument. As noted above, the Addendum that was part of the Buyer's offer clearly states that Buyer's offer would expire unless "unconditional" acceptance is delivered to Buyer by the noon deadline. Here, what was communicated by the listing agent was merely the signing of the contract. That is not always the same thing as "unconditional" acceptance. Here, the listing agent informed you that she was intentionally withholding delivery of the signed contract in the hopes that a second buyer would come forth with a better offer.

We believe that a court would determine that Buyer's offer expired by its own terms when Seller failed to deliver an unconditional acceptance by the noon deadline. Any "Contract" delivered after the deadline was nothing more than a counter-offer which Buyer could then accept or reject as he chooses.  

 

NC REALTORS® provides articles on legal topics as a member service. They are general statements of applicable legal and ethical principles for member education only. They do not constitute legal advice. The services of a private attorney should be sought for legal advice.

© Copyright  2017. North Carolina Association of REALTORS®, Inc. This article is intended solely for the benefit of NC REALTORS® members, who may reproduce and distribute it to other NC REALTORS® members and their clients, provided it is reproduced in its entirety without any change to its format or content, including disclaimer and copyright notice, and provided that any such reproduction is not intended for monetary gain. Any unauthorized reproduction, use or distribution is prohibited.

 

 

Who pays special assessments that come due after Settlement?

Release Date: 05/16/2017

This email address is being protected from spambots. You need JavaScript enabled to view it., Martin & Gifford, PLLC

QUESTION: I represent the seller in a transaction that went under contract using the Offer to Purchase and Contract (form 2-T).  The owners association that regulates the development in which the property is located recently imposed an assessment that is payable in equal monthly installments over a period of two years.  We disclosed the existence of the assessment in paragraph 7(c) of the Contract. 

The property is about to close and a disagreement has come up over who is responsible for making the monthly assessment payments after the property has closed.  The buyer agent says the seller has to pay the entire amount of the assessment at Settlement but it doesn’t sound right to me that the seller is responsible for payments that don’t come due for a year or more after the closing. What’s the answer?

ANSWER: The seller is responsible for paying the entire outstanding balance of the assessment.  We refer you to two sections in the Contract in support of this answer.  The first is the definition of a “Confirmed Special Assessment” in paragraph 1(n) of the Contract.  A “Confirmed Special Assessment” is “[a] Special Assessment that has been approved prior to Settlement whether or not it is fully payable at time of Settlement” (emphasis added).  This definition makes it clear that the character of a special assessment that has been approved by an owners association or governmental authority isn’t changed by the fact that the full amount isn’t payable as of the time of Settlement.

The second section of the Contract that is relevant in answering your question is paragraph 8(k).  Paragraph 8(k) provides that the “[s]eller shall pay all Confirmed Assessments, if any, provided that the amount can be reasonably determined or estimated” (emphasis added).  The assessment in question is, as noted above, a “Confirmed Assessment,” and its outstanding balance can be determined exactly by simply multiplying the amount of a monthly payment by the number of months remaining on the payment schedule.  Thus, according to paragraph 8(k), the seller is responsible for paying the outstanding amount of the assessment.

This situation underscores the importance of brokers understanding how the Contract allocates responsibility for payment of Proposed and Confirmed Special Assessments.  The “Seller Representations” section of the Exclusive Right to Sell Listing Agreement (form 101) includes a representation about the existence or absence of pending and confirmed special assessments (see paragraph 8(l)).  In completing this section of the listing agreement, listing agents should educate their seller clients about the meaning of those terms and why it matters, and question the seller carefully regarding the possible existence of any special assessments. 

 

NC REALTORS® provides articles on legal topics as a member service. They are general statements of applicable legal and ethical principles for member education only. They do not constitute legal advice. The services of a private attorney should be sought for legal advice.

© Copyright  2017. North Carolina Association of REALTORS®, Inc. This article is intended solely for the benefit of NC REALTORS® members, who may reproduce and distribute it to other NC REALTORS® members and their clients, provided it is reproduced in its entirety without any change to its format or content, including disclaimer and copyright notice, and provided that any such reproduction is not intended for monetary gain. Any unauthorized reproduction, use or distribution is prohibited.

 

 

Can property damage be a material fact even if the damage has been fully remediated?

Release Date: 05/09/2017

This email address is being protected from spambots. You need JavaScript enabled to view it., Martin & Gifford, PLLC

QUESTION: I have a listing under contract, and the parties are in the Due Diligence Period. Yesterday, the buyer’s agent informed me that his clients requested an insurance quote, and after the insurance company ran a C.L.U.E. report, the insurance carrier informed them that the insurance rate would be much higher than the buyers anticipated. The quote was higher than expected because the sellers recently had a plumbing issue in the kitchen that was fully remediated and paid for by another insurance carrier.

The buyers are now claiming that the kitchen remediation was a material fact that should have been disclosed. They are also demanding a return of their Due Diligence Fee and Earnest Money Deposit. Was the damage in the kitchen a material fact that should have been disclosed?

ANSWER: Under these facts, the answer is “no.” If a property has been partially destroyed, and the damage has been fully remediated by a licensed professional, then the damage is not a material fact that needs to be disclosed. (NC REC, Material Facts, pp. 28-29) The buyers have agreed in paragraph 4(b)(iii) of the contract that part of Due Diligence is the buyers’ right to investigate “the availability and cost of insurance for the Property.” Therefore, the buyers paid the Due Diligence Fee for the “right to conduct Due Diligence during the Due Diligence Period” and determine the cost of insurance.

Unless the buyers can show some other reason they should be entitled to a refund of the Due Diligence Fee, then the sellers are not under an obligation to return it because the kitchen damage was not a material fact. Of course, since the parties are still in the Due Diligence Period, the buyers can terminate and receive a refund of their Earnest Money Deposit. 

 

NC REALTORS® provides articles on legal topics as a member service. They are general statements of applicable legal and ethical principles for member education only. They do not constitute legal advice. The services of a private attorney should be sought for legal advice.

© Copyright  2017. North Carolina Association of REALTORS®, Inc. This article is intended solely for the benefit of NC REALTORS® members, who may reproduce and distribute it to other NC REALTORS® members and their clients, provided it is reproduced in its entirety without any change to its format or content, including disclaimer and copyright notice, and provided that any such reproduction is not intended for monetary gain. Any unauthorized reproduction, use or distribution is prohibited.

 

 

Who is entitled to the earnest money deposit if the buyer dies before closing?

Release Date: 05/02/2017

This email address is being protected from spambots. You need JavaScript enabled to view it., Martin & Gifford, PLLC

QUESTION: I represent a seller who entered into an Offer to Purchase and Contract (Standard Form 2-T). The buyer paid a due diligence fee and a $2500 earnest money deposit. After the due diligence period expired but before closing the buyer unexpectedly passed away. The buyer's executor has indicated that the estate does not intend to proceed with the purchase. My client has asked me if he is entitled to the deceased buyer's earnest money deposit if the executor fails to close on the transaction. What should I tell him?

ANSWER: While it may not seem just or moral for the seller to receive the buyer's earnest money deposit in this context, it is nevertheless true that the seller is legally entitled to that deposit. There are several reasons for this outcome.

First, the law in North Carolina generally holds that executors and administrators are bound by all of the contractual obligations of their decedents, except those that are personal in nature. A contract of an author to write a book, or an artist to paint a picture are examples of "personal contracts" that are said to die with the person. Death makes the performance of those types of contracts impossible. As a result, executors and administrators cannot be held liable for damages based on their failure to complete personal contracts.

In contrast, a contract to purchase real estate is not a personal contract. Therefore, if an executor or administrator neglects or refuses to carry out the purchase contract of his or her decedent, the seller will have all the remedies for breach that are set forth in Form 2-T. That includes the seller's right to terminate the contract due to the estate's failure to complete Closing, and to recover the buyer's earnest money deposit based on that breach of contract. 

Paragraph 18 of Form 2-T provides additional support for this position. It states: "This Contract shall be binding upon and shall inure to the benefit of Buyer and Seller and their respective heirs, successors and assigns." This language explicitly obligates the Buyer's heirs and estate to honor all of the Buyer's contractual obligations, including the obligation to complete the purchase in a timely fashion. If the estate fails to close, seller has the right to provide the buyer's estate with a unilateral notice of termination and to request the release of the earnest money deposit.

 

NC REALTORS® provides articles on legal topics as a member service. They are general statements of applicable legal and ethical principles for member education only. They do not constitute legal advice. The services of a private attorney should be sought for legal advice.

© Copyright  2017. North Carolina Association of REALTORS®, Inc. This article is intended solely for the benefit of NC REALTORS® members, who may reproduce and distribute it to other NC REALTORS® members and their clients, provided it is reproduced in its entirety without any change to its format or content, including disclaimer and copyright notice, and provided that any such reproduction is not intended for monetary gain. Any unauthorized reproduction, use or distribution is prohibited.

 

 

Can a buyer pay a due diligence fee in cash?

Release Date: 04/25/2017

This email address is being protected from spambots. You need JavaScript enabled to view it., Martin & Gifford, PLLC

QUESTION: I've had several agents in my firm recently ask me if a Due Diligence Fee can be paid in cash. I've advised them it's better to get a cashier's check, certified check, or perhaps even a money order so there is some kind of paper trail. However, one agent's client has a deep distrust of financial institutions. If this client insists on paying the Due Diligence Fee in cash, is it okay and if so, what steps need to be taken?

ANSWER: We agree with your advice discouraging the payment of cash Due Diligence Fees (“DDF”) in cash.  However, it is permissible for a buyer to pay a DDF in cash; in fact, we think a seller would be obligated to accept it since the Offer to Purchase and Contract (form 2-T) does not prescribe any particular method of payment for the DDF and cash is legal tender.

The proper handling of a cash DDF payment is a bit tricky.  The Real Estate Commission’s Rule on Handling of Trust Money (Rule 58A.0116) generally requires brokers handling monies belonging to others to deposit those monies into a trust account.  An exception to the general rule permits an agent to accept and deliver a due diligence fee paid by check or other negotiable instrument made payable to the seller.  However, the Rule provides that a cash payment received by a broker must be deposited into trust no later than 3 days following its receipt, no exceptions.  So, if a buyer gives a cash DDF to their buyer agent, the cash would need to be deposited into the firm’s trust account within 3 days of its receipt.  A trust account check made out to the seller could be prepared and delivered to the listing agent or the seller right away since there would be no need to wait for cash to clear like a check. 

 However, if the buyer agent’s firm doesn’t have a trust account, the cash would need to be delivered by the buyer to the listing firm, and the listing firm would be required to deposit the cash into its trust account.  If the listing firm doesn’t have a trust account either, the cash DDF would need to be delivered by the buyer directly to the seller.  That may raise different concerns.

 

NC REALTORS® provides articles on legal topics as a member service. They are general statements of applicable legal and ethical principles for member education only. They do not constitute legal advice. The services of a private attorney should be sought for legal advice.

© Copyright  2017. North Carolina Association of REALTORS®, Inc. This article is intended solely for the benefit of NC REALTORS® members, who may reproduce and distribute it to other NC REALTORS® members and their clients, provided it is reproduced in its entirety without any change to its format or content, including disclaimer and copyright notice, and provided that any such reproduction is not intended for monetary gain. Any unauthorized reproduction, use or distribution is prohibited.