By Elliott Topkins, Esquire
6/30/11
While I would wish it were otherwise, not all residential real estate purchases, or sales, close. There are many ways for a deal to “crater” and really just one way for a deal to close. In my practice, I have been involved in transactions with the following sets of circumstances, which caused a transaction which otherwise seemed solid to crumble. Believe me, this is not a pretty sight. Among other reasons, I have seen transactions fail to close because of the following:

The borrower loses her job between the date of the commitment letter issuance and the closing date. Very few lenders will lend to an unemployed borrower. The underwriting almost always takes into account earning ability. Unfortunately, a borrower in this position has very little leverage, and I have normally advised leaving some portion of the deposit “on the table” to cushion the seller’s loss.

The seller passes away before the closing date. This is certainly not something that is expected, but it can happen. Once you do not have a seller who is alive, you may have to get probate approval for the conveyance. This can take some extra time, so it is something that will delay, or in some instances prohibit, the transaction to close.

The seller’s financial condition experiences a crisis, so that there is an attachment placed on the property by a creditor. Sometimes, the creditor is the Internal Revenue Service, and a tax lien can really throw a monkey wrench into a sale transaction.

The borrower finds out that he is being transferred to another city after the mortgage commitment issues. Sometimes, the borrower’s employer will compensate the borrower for the loss, if any, experienced when the seller retains the deposit placed into escrow when the purchase and sale agreement is executed.

I have listed the examples set forth above to educate. These situations can arise, and if you are represented by able counsel, there are ways to mitigate, or even prevent, large financial exposure. The place to start is with the purchase and sale agreement, and there is no substitute for having a purchase and sale agreement which protects both parties. Other suggestions are to make sure that the mortgage commitment date and the closing date are not far apart. If possible I shoot for a week to ten days as an interval. This can cut down the time when the buyer is exposed to the vagaries of job loss or relocation.

On the seller’s side, I normally have the seller execute the Deed and Power of Attorney as soon as the P & S is signed. I am going to need to do this exercise, at some point in time, and I have always found that the “sooner the better” really applies in this situation.