REVISITING THE RPA: PARAGRAPH 3(G)

December 14th, 2011 at 12:07 am

Paragraph 3 (G) of the RPA, relating to the buyer’s verification of funds, is one of the contract’s most important protections for the seller. Specifically, this clause obligates the buyer to provide written verification of their down payment and closing costs. In other words, the contract requires that the buyer prove that they actually have the cash necessary to close the deal. At the time the present version of the RPA was drafted, this clause was added in response to objections of listing agents. After all, with the broad contingency rights given to buyers, listing agents felt that the document was unfairly favorable to buyers. As a result, this verification requirement was added to allow the seller to get some comfort that their buyer can actually perform.

What does all that mean from our perspective? It means that when you represent the seller, it is imperative that you ensure that verification documents are actually received. In far too many instances no verification documents are ever produced by the buyer and that the seller’s agent did nothing to procure those documents for her client. In my view, failing to follow up on the verification is a breach of your duty to the seller. As a result, when representing the seller, you should always calendar the 7th day to make sure the verification documents are received. If the seller does not receive them on time, you should call the selling agent to request them. If documents are still not received after a few days, you should talk to your seller about serving a Notice to Perform (“NBP”) on the buyer. By doing these things, and allowing the seller to decide whether to serve an NBP, you are doing your job.

The other issue that arises in regard to this paragraph relates to the sufficiency of the buyer’s verification. As you know, paragraph 14 allows the seller to give a NBP if he “reasonably disapproves” of the verification provided. So the question invariably becomes, what does “reasonably disapprove” mean? Unfortunately, I cannot really tell you. After all, “reasonably” is a very subjective term. As a result, if there is a question in this regard, your seller or their attorney needs to decide if the disapproval is reasonable. What we can tell the seller, however, is what our experience shows us. Specifically, sellers often disapprove of verifications written by the loan broker because they have an interest in the deal. They earn money if the buyer closes a loan with them. On the other hand, bank statements, or brokerage statements, are normally accepted. After all, those documents show the buyer’s actual cash and what they have to deposit in escrow. So, if asked what is reasonable, share that information with your seller and let them decide how to proceed.

As always, let us know if you have any questions.

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