|Connect With Us facebook twitter googleplus-20x20

Weekly Q&As

Condition of Property at Closing

Release Date: 8/11/2015

QUESTION:  I represent sellers who have their home under contract. The buyers conducted a walk-through, discovered several nail holes in the walls where my clients' pictures were hung, and are now demanding that my clients fill those holes, paint the walls and then professionally clean the entire house. The buyers have said that if my clients refuse to do those things, they would be in breach of the Contract and the buyers would have no obligation to complete their purchase. Are they correct?

ANSWER:  The buyers are not correct.

NCAR's Offer to Purchase and Contract (form 2-T) contains very specific provisions regarding when buyers have the right to terminate a Contract. For example, Paragraph 4 (f) gives buyers the right to terminate a Contract for any reason or no reason during the Due Diligence Period.

The Contract also specifies a few circumstances that enable buyers to terminate the Contract after the Due Diligence Period ends without themselves being in breach of the Contract. The seller’s failure to materially comply with any of the seller’s obligations under Paragraph 8 of the contract is one such circumstance (see Paragraph 8(n) and the warning at the end of Paragraph 4).  Another such circumstance is the non-satisfaction of the contingency set forth in paragraph 11 of the Contract.

Paragraph 11 states that the buyer's obligation to complete the transaction is contingent on the property being "in substantially the same or better condition at Closing as on the date of (the) offer, reasonable wear and tear excepted." The word "substantially" is important because it means that the buyers' performance of the contract will only be excused if the change in the condition of the property is material. While determining whether a change in condition is substantial or material may be difficult in some cases, it is clear that nail holes in the walls would not be considered a substantial or material change under any circumstances. If the buyers refuse to close because of nail holes, they will likely be found to be in breach of the Contract.

Form 2-T does not require sellers to either professionally clean the property or freshly paint the walls prior to Settlement. Therefore, unless the buyers have extracted a separate written agreement from the sellers to clean or paint the property, they have no legal basis to condition their performance on either action. 

 

NCAR 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.  If you or a client requires legal advice, the services of a private attorney should be sought.  Always consult your broker-in-charge when faced with a question relating to the practice of real estate brokerage.

© Copyright  2015. North Carolina Association of REALTORS®, Inc. All rights reserved. No reproduction of any part may be made without the prior written consent of the copyright holder. Any unauthorized reproduction, use, disclosure or distribution is strictly prohibited.

 

 

How long can a party delay after a new settlement date is agreed on?

Release Date: 8/4/2015

QUESTION: I have one of my listings under contract.  We’re past the Settlement Date and now the buyer’s agent says the buyer needs a new Settlement Date because her lender has been slow in approving her loan.  My seller wants to sell his house to the buyer but he has a back-up contract in place and is a little reluctant to give the first buyer another 14 days after a new Settlement Date to complete the purchase. If he agrees to a new Settlement Date, does the 14-day permitted delay period apply?

ANSWER: Yes, according to paragraph 13 of the Offer to Purchase and Contract (form 2-T).  However, effective July 1st, a new optional checkbox has been added to the Agreement to Amend Contract form (renumbered as form 4-T) that will allow the parties to agree to a shortened delay period following the new Settlement Date.  If the new box is checked, the delaying party will have 4 days, rather than 14 days, following the new Settlement Date, to complete Settlement and Closing.

 

NCAR 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.  If you or a client requires legal advice, the services of a private attorney should be sought.  Always consult your broker-in-charge when faced with a question relating to the practice of real estate brokerage.

© Copyright  2015. North Carolina Association of REALTORS®, Inc. All rights reserved. No reproduction of any part may be made without the prior written consent of the copyright holder. Any unauthorized reproduction, use, disclosure or distribution is strictly prohibited.

 

 

Agent's duty to disclose a short sale situation

Release Date: 7/28/2015

QUESTION: I have a wealthy client who recently asked me to list a residential property for sale. He purchased the property as an investment many years ago. Although the market where the home is located has substantially recovered, this particular property is still under water, i.e. it is worth less than the current mortgage balance. Is this a material fact that I have a duty to disclose?

ANSWER:  Before answering your specific question, it is helpful to remember some general rules regarding the sale of short sale properties. First and foremost, the general rule is that if a potential short sale situation exists, that situation is a material fact that very definitely must be disclosed by a real estate broker.

The listing agent is in the best position to ascertain the existence of a short sale situation. As part of the listing process, listing agents should not only perform a comparative market analysis to determine the probable sales price of the property, they should also always make the appropriate inquiries of the owner regarding the number and amounts of any mortgages or other liens against the property.

Agents who use NCAR's Exclusive Right to Sell Listing Agreement (Standard Form 101) can use a review of paragraph 12(g) of that form as an opportunity to ask the seller about all of the potential liens that may encumber the property. A note following paragraph 13(e) of the same form suggests consideration of the Short Sale Addendum (Standard Form 104) if the contemplated sale might be a short sale.

When should the potential short sale situation be disclosed? The Real Estate Commission has published guidance stating that a listing agent is not legally required to "advertise" the existence of a short sale situation in publications, flyers or MLS listings. However, all multiple listing services are required to give participants the ability to disclose the potential for a short sale, and some multiple listing services may, as a matter of local discretion, require participants to disclose that a transaction is a potential short sale.

Despite these general rules, not all situations where a property is under water meet the accepted definition of a short sale. In its 2011-2012 Update Course materials, the Real Estate Commission defined the term "short sale" to be a "sale of mortgaged real property where the proceeds from the sale are insufficient to pay in full the seller's outstanding mortgage and any other liens against the property and the seller lacks sufficient other assets to pay the remaining amounts due on the secured debts after application of the sale proceeds."   A similar definition appears in paragraph 1 of Standard Form 104. If your client is indeed wealthy, and can demonstrate to your satisfaction that he has sufficient liquid assets to pay any difference between the estimated selling price and the mortgage balance, the situation you describe does not meet the definition of a "short sale" and no disclosure would be required. 

 

NCAR 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.  If you or a client requires legal advice, the services of a private attorney should be sought.  Always consult your broker-in-charge when faced with a question relating to the practice of real estate brokerage.

© Copyright  2015. North Carolina Association of REALTORS®, Inc. All rights reserved. No reproduction of any part may be made without the prior written consent of the copyright holder. Any unauthorized reproduction, use, disclosure or distribution is strictly prohibited.

 

 

Acknowledging receipt of Due Diligence Fee

Release Date: 7/21/2015

QUESTION: In the new version of the Offer to Purchase and Contract (form 2-T), a place has been added on the last page where the listing agent acknowledges receipt of the Due Diligence Fee (“DDF”).  Also, in paragraph 21, it now says that any fee to be delivered to a party can be given to the party’s agent.  I assume that a DDF delivered to the listing agent still has to be delivered to the seller.  Is that correct?  Also, if the listing agent signs the DDF acknowledgment, should the seller still sign in the place where the seller acknowledges receipt of the DDF?

ANSWER: Yes to both questions.  As to your first question, the Contract says that the DDF is to be delivered to the seller and is the property of the seller as of the Effective Date of the contract.  See paragraphs 1(d) and 1(j).  Also, Real Estate Commission Rule 58A.0116(b)(4) requires a listing agent who has received a DDF to deliver it to the seller in short order.  The change to paragraph 21 you allude to simply clarifies that delivery of the DDF to the listing agent constitutes delivery of the DDF for contract enforcement purposes.  In other words, a seller couldn’t terminate a contract because he or she may not have personally received the DDF if the DDF has been delivered to the listing agent.

As to your second question, we think the seller should sign the DDF acknowledgment on the last page even if the listing agent has already signed the new listing agent acknowledgment.  As noted above, the Contract says that the DDF is to be delivered to the seller and is the property of the seller as of the Effective Date.  What better way to prove that these contract terms have been fulfilled than the seller’s written acknowledgment of receipt of the DDF?  And, for the listing agent, the seller’s written acknowledgement of receiving the DDF is proof of the listing agent’s compliance with the Real Estate Commission Rule mentioned above.  The seller’s failure or refusal to acknowledge receipt of the DDF in writing wouldn’t affect the validity of a contract, but we think it’s a good practice to obtain the seller’s written acknowledgment if at all possible.

 

NCAR 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.  If you or a client requires legal advice, the services of a private attorney should be sought.  Always consult your broker-in-charge when faced with a question relating to the practice of real estate brokerage.

© Copyright  2015. North Carolina Association of REALTORS®, Inc. All rights reserved. No reproduction of any part may be made without the prior written consent of the copyright holder. Any unauthorized reproduction, use, disclosure or distribution is strictly prohibited.

 

 

Should a non-owner spouse sign a listing agreement?

Release Date: 7/14/2015

QUESTION: I have been asked to list a piece of residential property. The home was purchased by the husband before he was married and the property is titled in his name alone. However, the husband and wife have lived in the home for many years. Does the wife need to sign the listing agreement? I have heard that the wife will have to sign the deed in order for any buyer to obtain title insurance. Why is that necessary if the husband is the only record owner?

ANSWER:  It is absolutely true that title insurers in North Carolina will insist that a non-owner spouse of an owner-seller sign a deed to any property owned during the marriage in order to issue title insurance to the buyer of that property. The reason for this insistence are two provisions in the North Carolina General Statutes that grant certain rights to a "surviving spouse".

Chapter 29 of the General Statutes is known as the Intestate Succession Act. That Act deals with how property is distributed to the family members of a person dying without a will. Chapter 29 grants surviving spouses two options: they can either accept a specified share of the decedent's assets, or they can take what is known as a "life estate" in certain property owned by the decedent during the marriage. However, the surviving spouse cannot elect a life estate in any property if they have joined with their spouse in conveying that property.

Chapter 30 of the General Statutes gives surviving spouses the right to claim what is known as an "elective share" of the "Total Net Assets" of a decedent, even if the decedent made different provisions in a will. The statute was intended to make it more difficult to disinherit a surviving spouse. Property owned by a spouse during marriage will be included in "Total Net Assets" unless the surviving spouse consented to the transfer of that property in writing (such as by signing a deed).  

To avoid the argument that a surviving spouse retains some interest in property owned during a marriage, title insurers invariably insist that non-owner spouses join in any conveyance of property by a married owner.

The Guidelines for Completing the Offer to Purchase and Contract (Standard Form 2G) and the Guidelines for Completing the Exclusive Right to Sell Listing Agreement (Standard Form 101G) both make reference to the statutory provisions described above. The Guidelines advise agents that a married seller's spouse should always join in the execution of a listing agreement and any subsequent purchase agreement, even if the spouse is not a record owner of the property. The signature of the non-owner spouse on the contract will obligate that spouse to join in signing the deed.

NCAR 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.  If you or a client requires legal advice, the services of a private attorney should be sought.  Always consult your broker-in-charge when faced with a question relating to the practice of real estate brokerage.

© Copyright  2015. North Carolina Association of REALTORS®, Inc. All rights reserved. No reproduction of any part may be made without the prior written consent of the copyright holder. Any unauthorized reproduction, use, disclosure or distribution is strictly prohibited.