May 2nd, 2016 at 6:44 am
Question: My buyer wrote a non-contingent offer that the seller has accepted. We have not yet received any disclosures, such as the Transfer Disclosure Statement (TDS). Can my buyer cancel now, or does he have to wait until he receives the disclosures before cancelling?
Answer: The buyer should generally wait before cancelling. If the buyer knows for a fact that the seller will agree to mutually cancel before the delivery of disclosures, he can go ahead and cancel now. However, that’s not something the buyer usually knows about, in which case, the buyer should wait. The TDS law specifically states that the buyer has “three days after delivery in person” to cancel (or 5 days after delivery by mail). The buyer also has a similar 3-day cancellation right for some of the other statutory disclosures, including the Natural Hazard Disclosure (NHD), Mello-Roos taxes, and 1915 Bond Act assessments.
What you are essentially asking is whether the buyer has an absolute right to cancel under the TDS and other statutory laws. The law does not say for certain one way or the other, but the answer is likely to be “no.” When a buyer has already entered into a purchase agreement with the seller, they owe each other a duty to act in good faith and deal fairly. Cancelling under the 3-day right to rescind before receipt of the TDS could potentially be construed as acting in bad faith. Even after receipt of the TDS, cancelling could still be construed as acting in bad faith if, for example, the TDS discloses nothing of significance to the buyer. Of course, whether the TDS discloses something significant to the buyer is often difficult for a seller to ascertain. But consider the other statutory laws. Assume that a disclosure states that the property is not located in any of the flood, fire, or earthquake hazard zones under the NHD law, or that the home is not in a Mello-Roos or 1915 Bond Act district. If a buyer nevertheless elects to exercise a 3-day right to cancel upon receipt of these “good news” disclosures, a seller may be able to successfully argue that the buyer has acted in bad faith.
-Thank you to Fred Coleman for suggesting this week’s legal tip.
April 25th, 2016 at 10:34 pm
Question: I just submitted an offer on my buyers’ behalf. My buyers signed the offer on Page 9 of the Residential Purchase Agreement (RPA). But the listing agent said she will not present our offer to the seller until the buyers insert their initials at the bottom of the last page (Page 10) where it says “Buyer Acknowledges that page 10 is a part of this Agreement.” Can the listing agent do that? Are the initials on the last page legally required?
Answer: As to your first question, the answer is “it depends.” Both the MLS rules and the NAR Code of Ethics require a listing agent to present an offer as soon as possible. However, the problem is we don’t know if the listing agent decided not to present your buyers’ offer on her own or with the seller’s permission. If she made the decision on her own, she has violated the MLS and ethics rules (not to mention her fiduciary duty to the seller). If the listing agent has the seller’s permission (and no ulterior motives), she has not violated the rules.
As to your second question, the answer is “no.” Because the buyers’ signatures are now on Page 9 instead of Page 10 of the RPA, C.A.R. added a place at the bottom of Page 10 for the buyers to acknowledge receipt of that page by inserting their initials. Having the buyers’ initials on Page 10 is not legally required, but it is definitely a good way to show that the buyers have reviewed and agreed to that last page.
The ultimate question in your situation is whether you should challenge what the listing agent is saying or get the buyers’ initials. I’d generally recommend doing? both. Tell the listing agent that her request is highly unusual, given that your attorney has already told you that the buyers’ initials on Page 10 are not legally required, and at the same time, get your buyers’ initials anyway and resubmit their offer.
-Thank you to Bill Taylor for suggesting this week’s legal tip.
April 18th, 2016 at 8:35 pm
Question: I often hear other agents use the word “escrow” to refer to the fact that a buyer and seller are in contract with one another, such as:
•? “We opened escrow.”
•? “We’re in escrow.”
•? “We haven’t closed escrow.”
•? “Escrow has not been cancelled.”
Is having a pending escrow file the same thing as having a “valid contract”?
Answer: No. In practice, we often use these phrases to describe a pending sales transaction. However, from a legal standpoint, whether the parties have a valid contract depends on whether they entered into an agreement and are performing the terms of that agreement. Of course, the fact that the parties have a pending escrow file tends to show that the parties have a valid contract. But the ultimate determination as to whether a contract is valid depends on all the facts and circumstances, not just whether the parties have a pending escrow file. Hence, when you are a buyer’s agent, and your buyer has just received an accepted offer, don’t be fooled if the listing agent says, “Your buyer doesn’t have a valid contract because we haven’t opened escrow yet.” Or when you are a listing agent, and the buyer has failed to perform on a pending transaction, don’t believe a buyer’s agent who says, “Your seller must sell to my buyer and no one else, because we are in escrow.” Parties can have a valid contract but no pending escrow file, or they can have a pending escrow file, but no obligation to perform.
April 11th, 2016 at 6:59 pm
Question: We are taking a listing for a home where a famous murder-suicide occurred over 50 years ago. The home is commonly known as the “Los Feliz Murder Mansion.” I know we do not have to disclose a death that occurred on the property over 3 years ago, but should I disclose anyway, and if so, how do I disclose without casting the home in a negative light?
Answer: Yes, you should disclose. As you said, we are not legally required to disclose a death on the property that occurred over 3 years ago. However, to be safe, we should disclose the notoriety of the home, which a judge or arbitrator could potentially decide is a separate material fact affecting the value or desirability of the property. As for your second question of how to disclose, there are many possible answers. You are not obligated to take your eye off the fact that we are still trying to professionally advertise and market the property for sale. One possibility is to say: “Property has been stigmatized by a murder-suicide that occurred on the premises over 50 years ago. Buyer to investigate into this matter as Buyer deems appropriate.”
–Thank you to Nancy Sanborn for suggesting this week’s legal tip.
April 4th, 2016 at 6:08 pm
Question: In last week’s legal tip, you didn’t really finish answering the question. During escrow, the built-in dishwasher stops working. We represent the buyer so we inform the other side that the seller is obligated to repair the dishwasher. As you explained last week, under paragraph 11? of the RPA,? the seller is required to maintain the property in the substantially the same condition as on the date of acceptance. What if the seller still refuses to repair the dishwasher?
Answer: If the seller still refuses to repair, the ball goes back into the buyer’s court for the buyer to decide what to do. One option is to forget about the repair and buy the property anyway. Another option is to cancel the agreement due to the seller’s breach of contract. A third option is to ask the seller to go to mediation. A fourth option, and there may be other options as well, is to buy the property and then pursue a legal claim against the seller after close of escrow. For Option #4, a prudent buyer would, before close of escrow,? inform the seller in writing not to construe the close of escrow as a waiver of any rights the buyer may have to pursue the seller for any legal claims, including the repair of the dishwasher. After close of escrow, the buyer may go directly to small claims court, given that the repair of a dishwasher is likely to be less than the $10,000 limit for small claims court actions (no need for mediation/arbitration). If the dispute involves a big ticket item instead of a dishwasher, the buyer is probably best off hiring an attorney who will pursue mediation/arbitration and litigation if necessary.
All that said, as the broker and agent in the deal, we do not want Option #4. We would strongly prefer resolving this dispute before close of escrow, because if the buyer waits until after close of escrow and the buyer is unsuccessfully in resolving this matter with the seller, the buyer may try to get us to pay for the repair. At a minimum, we should inform the buyer in writing that closing escrow without getting the item repaired is against our advice, and that we strongly recommend that the buyer discusses the legal consequences with the buyer’s own attorney before proceeding with the purchase.
–Thank you to Randy Freed for suggesting this week’s legal tip.
