July 30th, 2017 at 11:02 am
Answer: Yes. By entering into a purchase agreement, Sally does not promise that she is the current owner. Instead, she promises that the buyer shall receive a grant deed conveying title at close of escrow (see paragraph 13D of the RPA). If, however, Sally fails to convince Owen to sign the grant deed before close of escrow, Sally may be liable to the buyer for any monetary damages suffered (but not specific performance because Owen never agreed to sell).
Of course, Sally should protect herself by disclosing the situation to the buyer and making the sale contingent upon her ability to convey title. Buyers should also protect themselves by always checking upfront to see whether the names on title match the names of the sellers. If they don’t match exactly, the buyer should look into the matter and decide whether to take on the risk that the seller may not be able to convey title at close of escrow.
Examples of when this issue arises include the following: when 2 or more people are on title but only one of them is a seller (e.g. divorce); when a buyer is trying to resell to another buyer during escrow; when an optionee wants to exercise an option to purchase and resell concurrently; when an owner wants to transfer title to a corporation before close of escrow for tax purposes, and certain court-ordered sales (e.g. bankruptcy trustee).
-Thank you to Lorie Bartron (Santa Barbara Office) for suggesting this week’s legal tip.
Copyright© 2017 Berkshire Hathaway HomeServices California Properties (BHHSCP). All rights reserved. Any unauthorized reproduction or use of this material is strictly prohibited. This information is believed to be accurate as of July 31, 2017. It is not intended as a substitute for legal advice in individual situations, and is not intended to nor does it create a standard of care for real estate professionals.
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