Satisfaction of Fixture Liens by Seller at Closing

QUESTION: My buyer is closing on a property in two days, and we just learned that the water heater is leased and not owned by the seller. The seller is claiming that my client needs to assume the lease and the lien on the unit. The water heater was not mentioned in paragraph 2 of the Offer to Purchase and Contract (Form 2-T) at all. Is my buyer obligated to assume this loan, or does the seller need to pay off the lien as part of the sale?

ANSWER: The seller will have to satisfy the lien or risk being in breach.

Paragraph 2(a) in Form 2-T clearly states that “ALL EXISTING FIXTURES ARE INCLUDED IN THE SALE AS PART OF THE PURCHASE PRICE, FREE OF LIENS, UNLESS EXCLUDED IN SUBPARAGRAPHS (d) OR (e).” Paragraph 2(b), the paragraph that contains bullet points of specific items included in the sale, has similar language requiring the seller to convey the bulleted items “free of liens.” Paragraph 2(d) permits the parties to state which fixtures are leased or not owned and exclude those items from the sale. Paragraph 2(e) is a catchall that allows the parties to exclude any other fixtures from the sale, regardless of whether such items are leased or have a lien.

In your case, the water heater is clearly a fixture under both paragraphs 2(a) and 2(b) in Form 2-T. A water heater would satisfy the Total Circumstances Test under North Carolina law, which you can read more about in this Q&A, and therefore it would qualify as a fixture under paragraph 2(a). It is also specifically mentioned in paragraph 2(b), which says that all “water supply equipment” shall be included as part of the sale.

Since the water heater is a fixture and was not excluded by the parties in either paragraphs 2(d) or 2(e), the standard form language requires the seller to convey the water heater free of liens to the buyer. If the seller does not, then the seller risks being in breach of contract. To avoid these sorts of surprises to the seller late in a transaction, listing agents should carefully review the “Current Liens” section in the Exclusive Right to Sell Listing Agreement (Form 101) with their seller at the time the agency agreement is signed.

© Copyright 2023. 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.

Filed Under: Fixtures,