Better to miss a deadline than kill entire transaction

Friday, April 12, 2019, Vol. 43, No. 15

In most real estate transactions, there is a confluence of legality, reality and realty. From time to time, however, there are situations in which the law and the contract and realism are at war.

In these skirmishes, it is possible to win the battle and lose the war.

In real estate circles, a purchase and sale agreement is referred to as an offer until such time as the parties involved have agreed to all of the terms and conditions. It then becomes a contract.

The transaction is considered to be binding when the signed contracts are delivered. Then, a number of deadlines begin to loom over the proceedings. In an effort to simplify the journey through inspections, appraisals, financing and myriad other contingencies, the Tennessee Realtors have constructed the perfect Purchases and Sale Agreement, aka RF 401.

The RF 401 has a deadline of three days for the buyer to make a loan application. That’s easy enough, except if the buyers forget or did not read that part.

If the buyer fails to apply for the loan within three days and the seller’s agent is not told who the lender is, the contract has provisions for the buyer to cure this shortcoming. The seller also can terminate the contract.

There are other deadlines that deal with applying for insurance, making the various inspections and resolving any issues discovered during the inspector’s assessment.

If the property has taken months to sell – and it’s apparent that no other person has any interest in purchasing the property – should the seller terminate the contract? There might be a valid reason why a deadline was missed.

Often at this point, the sellers scream “breach of contract!” and think that such proclamation will cause the heavens to open and pour cash down upon them. Miraculously, they believe, their sale will close, perhaps even with thousands in damages. No need to win the lottery, the buyer breached the contract.

Or did he? There is breach and there is default. And they are different. Each party in a contract has certain rights according to attorney-turned-real estate agent Leilani Boulware. She was quick to add that “All rights granted to buyer and seller alike are not always beneficial to that party depending upon the circumstances.”

The legal system does not operate as fast as most would think, and that “speedy trial” clause in the Sixth Amendment pertains to those accused of criminal activity. While the parties in real estate disputes often view their adversaries’ actions as criminal, the real estate cases are tried in civil courts, even though the combatants are not civil by that point.

Another factor viewed as a secret weapon in the sellers’ armory is the fact that Tennessee has laws pertaining to specific performance. When buyers lag on hitting deadlines such as the loan application or even the inspection, sellers often feel that they can invoke the specific performance provision and force the buyer to immediately perform.

Such a case could take as long as a year to try, thereby costing the seller months of marketing the property. However, the specific performance clause could be of more value to buyers. In a few cases, the seller has a property under contract and refuses to close.

There could be a better offer in hand and, after refusing to sell on the original contract date, the seller then plans to sell to another party for more money. This could be viewed as an emergency, and the courts might grant an injunction to stop the second sale until they can rule on the specific performance issue.

Normally, buyers want to purchase the properties they have under contract. And they, or their Realtors, miss a deadline or two along the way.

With 29 pages of contracts, disclosures, disclaimers, confirmations and agreements that are required in all real estate transactions being delivered to buyers and sellers via electronic signature programs, it is understandable that a timeline in some of the documentation might have been overlooked.

If the seller has a secondary contract in place with better terms, that seller is often perched like a hawk waiting for the primary buyer to miss a deadline so they can swoop down and terminate the contract.

At that point, the secondary contract would come into the primary position and close as agreed. Unless, that is, the ousted buyer seeks temporary relief.

In instances when the original buyer does, in fact, breach the contract – and the seller is forced to sell again – the property must sell for less money or the seller must have incurred financial harm between the breach and the final sale for damages to be awarded.

If, however, the first buyer breaches the contract, and the seller sells the home quickly for more money with similar terms, it would be difficult to prove they were damaged.

In short, a buyer’s breach is not as favorable as some sellers think. It can take time and expense to recover damages, if there are any.

So, the best option is often to work with the buyers who actually want to buy rather than to abandon the role of seller and assume that of plaintiff.

Richard Courtney is a licensed real estate broker with Fridrich and Clark Realty and can be reached at richard@richardcourtney.com.