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Weekly Q&As

Is the Contingent Sale Addendum subject to the 14-day delay period in Form 2-T?

Release Date: 07/11/2017

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

QUESTION: One of my listings is under contract and subject to a Contingent Sale Addendum (Form 2A2-T). The settlement date passed six days ago, and the buyers’ agent has just today sent me a notice of termination with a request to return the Earnest Money Deposit (“EMD”) to the buyers. I told the buyers’ agent that my sellers were entitled to the EMD and that they would not consent to the buyers’ receiving a refund.

The buyers’ agent argued that because our transaction was still within the 14-day delay window in the Offer to Purchase and Contract (Form 2-T) that the buyers time for terminating had not yet expired. Is the buyers’ agent correct?

ANSWER: No. Paragraph 1(b) of the Contingent Sale Addendum provides that “[i]f there is a Contract For Buyer’s Property, but the closing on the sale of Buyer’s Property has not occurred by the Settlement Date of this Contract, then Buyer may terminate this Contract within three days following the Settlement Date of this Contract.” Form 2A2-T states that TIME BEING OF THE ESSENCE applies to this provision. This means that strict compliance to the deadline is necessary for compliance.

Paragraph 13 of the Form 2-T is clear that the Settlement Date does not change when there is a delay. Instead, it explains that the Delaying Party can still close within 14 days as long as they are acting in good faith and with reasonable diligence toward Settlement. Because Form 2-T does not adjust the Settlement Date in the event of a delay, the three-day deadline in paragraph 1(b) of the Contingent Sale Addendum does not move. From the Settlement Date, a buyer therefore only has 3 days to terminate under Form 2A2-T.

Applying the foregoing to your case, the buyers have missed their ability to terminate and receive a refund of their EMD under the contingent sale addendum. Your seller clients are entitled to keep it. However, the expiration of the three-day period in the Contingent Sale Addendum did not affect the buyers’ right to close. Had the buyers not terminated, they could have attempted to complete the sale since the 14-day delay period had not yet passed.

 

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.

 

 

Is a buyer's concealment of a significant debt a breach of contract?

Release Date: 07/05/2017

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

QUESTION: I am a listing agent. My client (I'll call her "Seller") entered into a contract with a buyer who represented, in paragraph 5 of the contract, that he would be obtaining a loan to finance his purchase of the property. Just before the due diligence period expired, we received notice from the buyer's agent that the buyer was terminating the contract. The agent told me the reason: the buyer's loan had fallen through because his lender discovered that the buyer had failed to pay any income taxes for the past three years. The buyer is demanding a refund of his earnest money deposit. However, Seller thinks the buyer's concealment of his financial problems entitles her to receipt of the earnest money deposit. Is she correct?

ANSWER: Not necessarily. Seller would first have to establish that the buyer's debt to the IRS prohibited him from performing his contractual obligations.

Paragraph 5 of the Offer to Purchase and Contract is the section relating to "Buyer Representations". As noted in the Guidelines for completing the Offer to Purchase: "Buyer Representations are statements of current facts that Seller may reasonably rely upon in deciding whether to enter into the Contract." A misrepresentation by the buyer is arguably a breach of contract that would entitle Seller to payment of the earnest money deposit as liquidated damages.

Paragraph 5(c) is entitled "Performance of Buyer's Financial Obligations". It reads as follows: "To the best of Buyer's knowledge, there are no other circumstances or conditions existing as of the date of this offer that would prohibit Buyer from performing Buyer's financial obligations in accordance with this Contract, except as may be specifically set forth herein."

Seller was entitled to rely on this representation. However, while the buyer's failure to pay income taxes for three years was certainly something the buyer was aware of, and while that failure would certainly seem to affect the buyer's ability to obtain a loan, Seller does not know whether that failure to pay taxes actually prohibited the buyer from completing the purchase. For example, the buyer may have the ability to pay cash for the property.

Paragraph 5(c) does not obligate buyers to provide financial information to sellers. Many if not most buyers have some debts, and buyers don't have any obligation to tell sellers about those debts. The only exception to this rule is when the buyer knows of a situation that would prohibit the buyer from performing the buyer's financial obligations under the contract. 

 

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.

 

 

Are the disclosure statements required on a condo sale?

Release Date: 06/27/2017

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

QUESTION: I represent a buyer who is interested in making an offer on a condo I’ve shown him.  I’ve asked the listing agent for copies of the Residential Property and Owners Association Disclosure Statement and the Mineral and Oil and Gas Rights Disclosure Statement, but she insists that they aren’t required for condo sales.  When I asked why, she said there are two reasons: one, the law only applies to the sale of real property and the owner of a condo doesn’t own the property under the condo, and two, the law only applies to transfers of real estate where there are one to four dwelling units, and the complex where the condo is located has more than four units.  That doesn’t sound right to me.  What do you think?

ANSWER: We don’t think it sounds right either.  The law in question here is the Residential Property Disclosure Act (the “Act”).  Section 47E-1 provides that the Act is applicable to specified “transfers of residential real property consisting of not less than one nor more than four dwelling units.”  According to Section 47E-3, the term "real property" is defined as “the lot or parcel, and the dwelling unit(s) thereon, described in a real estate contract subject to this Chapter.”

Regarding the first reason the listing agent gives for her position that the Act doesn’t apply to condo sales, it’s true that the owner of a condo does not own the real estate under his or her condo in the same way as the owner of a single-family, detached home. However, they do own the real estate on which their condo is situated; it’s just that they own it together or ‘in common” with all the other owners in the complex along with all the other common areas.  Thus, in our view, the sale of a condo unit is a transfer of residential real property as that term is defined in the Act.

As to the second reason given by the listing agent for the inapplicability of the Act to this condo sale, it’s not the total number of units in the condo complex that determines whether the Act applies or not, it’s the number of dwelling units being transferred.  Since this potential sale is for one condo unit, the Act applies and the owner is obligated to provide both Disclosure Statements, assuming that none of the exemptions set forth in Section 47E-2 apply. 

 

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.

 

 

What happens to a listing agreement when the listing agent dies?

Release Date: 06/20/2017

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

QUESTION: A prospective client has approached me about listing their property for sale because the broker they were working with recently passed away. The deceased broker was a sole proprietor, but the client’s listing contract was with the firm, not the deceased broker. I have called the executor of the deceased broker’s estate to find out whether they will release the client, but I have not heard a response. The client needs to sell this house quickly and is becoming frustrated. Is there anything I can do for this prospect?

ANSWER: Unfortunately, if you cannot reach an agreement with the firm’s current representative, then we believe the answer is “no.” Under the license law, if a sole proprietor dies or becomes incapacitated, the NC Real Estate Commission will issue a temporary license to the administrator of the estate for the purpose of distributing trust money or paying commissions. 21 NCAC 58A .0512 However, this limited license does not give the estate the ability to help clients such as the one who has approached you, because the estate does not have the ability to undertake any other actions for which a real estate license is required.

The holder of the prospective client’s contract is the firm, not the deceased broker. Even though the broker may have died, the firm likely has not. Depending on the firm’s guiding documents, if any, there may be a contingency plan in place that will allow the firm to perform the contract. If that is the case, then the client may not be able to terminate the listing agreement without being in breach. This also means you would be prohibited from interfering with the current listing agreement under Article 16 of the Code of Ethics.

If the prospect wants to come to your firm right now, then your best option at this stage is to make an arrangement with the deceased broker’s firm through its current representative. The only other option is to refer the prospect to a lawyer to see if they can terminate the current listing agreement. If you are a sole proprietor yourself, make a note of how your death may affect your loved ones, and your clients, and create a contingency plan for your real estate firm as part of your estate planning.

 

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.

 

 

Does the cost of a home warranty include sales tax?

Release Date: 06/13/2017

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

QUESTION: I know the law changed recently so that now there is tax due on the sale of a home warranty.  My question is, if an Offer to Purchase and Contract provides that the seller will pay for a home warranty at an agreed-upon cost, does the amount in the blank include the sales tax or would the seller have to pay the tax on top of that amount?

ANSWER: The Contract does not clearly specify whether the agreed-upon cost of the home warranty includes the tax payable on the sale of the home warranty.  For that reason, a change has been recommended and approved to the “Home Warranty” paragraph in the Contract to make it clear that the amount inserted in the blank in the second or third menu choice includes the amount of any sales tax. We have been told that an agent may contact the home warranty provider to find out the amount of sales tax that will be payable on a particular product.  The amount of the tax should be added to the cost of the home warranty and the resulting sum inserted in the appropriate blank.

This change is one of several made to the Contract.  The changes to the Contract—as well as a number of other forms—go into effect July 1st.  A list of the forms that are changing and a bullet-point summary of the changes is now available on the homepage of the NC REALTORS® website.  You may also link to a marked-up copy of an affected form to see the exact changes that have been made.

 

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.