February 9th, 2013 at 7:32 pm
I got a couple of calls this week that are not too difficult to deal with, but have been very common over the years. As a result, I thought it a good idea to share them with you.
1. The first question normally goes something like this: “My seller is really the child of the person who has owned and lived in the property for the past 30 years. The parent has passed away, and the child is now the individual seller, so I need to do a TDS. Unfortunately, the child has not lived in the house for 20 years and knows nothing about its condition. What do I do?”
The main thing to realize in this situation is that a TDS does not require you to actually know things about a property. It just requires you to disclose what you know. So, in this case, you should have your seller (the child) fill out the disclosure forms as completely as possible. They invariably have some information, like the features of the property, and complete that portion of the form. Then, in the blank lines, have them write that they have not lived in the house for 20 years and therefore do not have the information of a normal seller. In this way, your seller is telling he buyer what they are and are not getting and, more importantly, is complying with his legal obligation to disclose everything he knows. In some deals, the seller will pass away after they have signed your listing and after they have completed an original TDS, but before the house is sold. In that case, turn over the deceased seller’s disclosure, as well as one prepared by the heir. That way we again make sure to cover all of our bases.
2. The next question I got is a little different twist on the disclosure issue. In this case, we are already in escrow and have delivered all the disclosure documents to the buyer of record. They have reviewed those documents, signed them and returned them to our seller. And then, in the last few weeks of escrow, the contract gets assigned to a new buyer. Of course, in this case the question becomes what do we have to do to make sure that the new buyer/assignee gets the appropriate disclosures.
In this case, it is possible to argue that nothing needs to be done. After all, as assignee the new buyer theoretically steps in to the shoes of the original buyer at the time of the assignment. As a result, since buyer no. 1 saw and approved the disclosures, it is arguable that the new buyer is bound by that approval. That being said, given the fact that most of our lawsuits still arise from disclosure issues, we believe you should do more. Rather than rely on the original buyer’s signatures, take out all of the disclosure documents delivered to buyer no. 1, list them on a separate document and write the following at the bottom: “Received and approved by [buyer no. 2/assignee’s name].” Then have the new buyer sign on the bottom of the page, put it in your file and you are fine. You do not need to have buyer no. 2 sign each disclosure individually. This type of catch all is fine in this circumstance.
As always, plese contact your manager if you have any questions and they will get the Legal Department involved if necessary
February 2nd, 2013 at 7:31 pm
As you know, a few weeks ago we did a blog post regarding the Demand to Close Escrow (DCE) and its proper use. While most of our posts result in some questions from you to your managers, this one created more buzz than usual and a couple of consistent questions that I thought were worth discussing.
First, we were asked numerous times whether the DCE can be give before the scheduled close of escrow date, or whether you have to wait until that date to give one. The answer to this question can be confusing since the documents available to answer it seem to contradict themselves. First, in the DCE itself, in paragraph 1B, close can be demanded for a certain date which is “at least 3 Days After receipt of this Demand to Close Escrow but no earlier than the agreed upon Close of Escrow date.” This last clause, of course, implies that the DCE can be given before the scheduled close date. In the Purchase Agreement, on the other hand, in paragraph 14E states as follows: “Before Seller or Buyer may cancel this Agreement for failure of the other party to close escrow …” on time, they must give the DCE. Of course, since the only way to know whether the other side has failed to close on time is to wait for that date, then this clause implies that you should wait until the scheduled close of escrow, at the earliest, to give a DCE. So, which is it: before or after. In our view, the better answer is to follow the RPA and wait until the scheduled close date before giving a DCE. First, the only agreement between buyer and seller is the RPA, not the DCE. So, in our view, it should govern. Further, it is also true that you can never be sure if someone will not close on time unless you give them the chance to do so. So you cannot give a notice for “failure” to do so without waiting. While we may have a lot of hints that the other side will be late, and while we may be proven right most of the time, there are instances where things change and we are surprised. So be safe and wait. At that point, no one will be able to attack your DCE as having been improperly served.
Next, a number of questions related to the situation where you get to the scheduled close of escrow and the buyer’s contingencies have not been removed. In that case, I was asked, do you first need to give a Notice to Perform and let that time run before giving a DCE. The answer here, in my mind, is much simpler: You can immediately give a DCE. I say that because it is not necessary for any contingencies to be removed for the escrow to close. In theory, you can let them all run through the escrow and still close as scheduled. While as a seller’s agent you should never do that, it is possible pursuant to the contract. So, if you get to the close date, and the buyer is late, your seller may give a DCE and ignore the open contingencies. The buyer has an independent duty to close as scheduled.
As always, please contact your manager with any questions they may have. Your manager will, of course, contact us when necessary.
January 26th, 2013 at 7:30 pm
As we discussed last week, we are seeing a lot of multiple offers throughout the Company. With that fact in mind, I have begun getting calls about our agents’ handling of these transactions. Specifically, I have gotten a number of calls from outside brokers who claim that their client’s offer for our listing did not get properly presented to the seller. Invariably, in every case where this call comes in, a buyer represented by our listing agent ultimately got the property. In these transactions, the unsuccessful offerors obviously think that something was amiss in the process and that their offer did not get a fair shake. Given the increase in these complaints, I wanted to remind you of our policy in this regard.
Specifically, if you represent the seller of a property with multiple offers, and you also represent one of the potential buyers, you have to get your manager involved in the process. You need their help because this situation presents a clear conflict of interest for you. After all, you have a fiduciary duty to the seller to advise them about the subject offers, and to give that advice with ONLY their interests in mind. Unfortunately, you also represent one particular buyer and therefore have to look out for their interests. As importantly, with a potential dual agency, you also have your own interest to consider, since you would make extra money if your buyer gets the house. Of course, that interest may conflict with the seller’s, since it is possible that your buyer does not make the best offer for the property. As a result, in order to eliminate both this actual conflict and the appearance of impropriety, you need to remove yourself from the offer process. Get your manager involved and let them “represent” the seller until an offer is actually accepted. When this happens, all offers would be forwarded to your manager, who will then present them to the seller and answer his/her questions about each. Any advice regarding which offer is “stronger” or “weaker” will come from the manager. That way, you are not tempted to steer the seller to your buyer, and the advice being given is not impacted by the conflicts you face. After an offer is accepted, your manager steps away and you handle the rest of the deal on behalf of the seller, even if your buyer gets the property.
By removing you from the offer process, this policy eliminates both of our problems: the potential conflict between the interests of the seller, your buyer and yourself and the appearance to other buyers and agents that you are improperly influencing the seller’s choice. So please remember this policy and involve your manager in multiple offers when appropriate. It will save us all a lot of problems down the road.
As always, if you have any questions, please contact your manager so they can (1) clarify this policy for you or (2) contact the legal department as needed.
January 18th, 2013 at 7:29 pm
As you know, given the lack of inventory in most of our markets, many of our buyers have found themselves in multiple offer situations when they find a house they like. I have heard many stories about buyers losing out on 5-6 properties before they can get an offer accepted, and they are only successful when they write their offer in particular, pro-seller ways. For example, I have seen contracts where the buyer’s contingency period is reduced to 3 days, or the contingencies are waived altogether. I have seen a buyer who needs a loan, write an offer with no loan contingency, and I have seen buyers offer to release their $50,000 deposit upon acceptance. While I understand the reason for each of these suggestions, and how they might make your buyer more attractive to a seller, they obviously carry significant risks that we have to be sure to cover appropriately.
Specifically, whenever you discuss these types of clauses with a buyer, you have to explain not only the benefits of including them in your offer, but also the risks. For example, if you discuss the possibility of waiving the loan contingency, you also have to explain what that means. You have to tell your buyer that, if they removed their other contingencies and don’t get a loan, they will not have a cancellation right and will lose their deposit if they do not go forward. If you discuss the possibility of releasing money early, you have to warn them that, even if they cancel the deal appropriately, getting money back from the seller will be extremely difficult. And, if you discuss waiving all contingencies in the offer for a very popular property, you need to go through each normal cancellation right, explain what it normally protects, and make the buyer understand what they might be stuck with. For example, if I waive my inspection, the property may have numerous problems that cost me significant money to fix. If I waive my title contingency, there may be an easement that I have to accept against my wishes. And, if I waive the HOA contingency, there may be something in the CC&Rs that I don’t want to accept but have to f I don’t want to breach the agreement. In short, you need to make sure your buyer understands that, even though these proposals may make them more likely to get the house, they may include downsides which make the house different than they think and not what they want.
In the course of drafting these offers, one thing you should remember is the breadth of the investigation contingency in the RPA’s paragraph 10. As you know, that clause allows the buyer to investigate “any matter” relating to the property. In fact, the Buyer’s Inspection Advisory recommends that the buyer investigate almost everything you can think of, including the buyer’s “personal preference.” As a result, if you keep the investigation contingency, which lets you get out of the deal for almost any reason, you are protecting yourself against problems which arise by waiving other contingencies. For example, if I waive my loan contingency and cannot get a loan, you can always come up with some “matter” affecting the property that causes your cancellation. In other words, you can use your investigation contingency as protection against the waiver of others. So, while I would never recommend that my client waive their contingencies (suggest that they shorten them instead), always recommend keeping the investigation so they have as much protection as is possible.
As always, please call us with any questions you may have.
January 12th, 2013 at 7:28 pm
I am getting a lot of calls recently about how to cancel an escrow where one of the parties fails to close on time. In most cases, the buyer’s loan is running late and, as a result, the seller wants out. They have lost their patience with the present buyer and want to move on to buyer no. 2. The question, of course, relates to the best way to accomplish this goal. And, as you undoubtedly know, that way now includes the Demand to Close Escrow (CAR From DCE). So, how does the DCE work and how should you use it?
The first thing to remember is that a Notice to Perform (NBP) is NOT the appropriate document for a deal where one party wants to cancel because the other has not closed on time. From a lawyer’s perspective, the reason for this is easy: the contract does not provide for using an NBP in this circumstance. As you know, the use of an NBP is set forth in paragraph 14C(1) and (2) of the Purchase Agreement. In those clauses, the seller is given the right to cancel, “after first delivering to Buyer…” an NBP, if the buyer does not remove contingencies on time or does not perform the following contractual obligations: make their deposit, make their deposit with good funds, deliver a preapproval letter, provide their verification of funds or return the statutory disclosures. Notice that closing escrow on time is not included in this list. As a result, when looking at what the NBP was created for, we do not see a failure to close.
Additionally, both paragraphs 14C(1) and (2) provide that, after giving an NBP and upon cancellation, the seller shall “authorize the return of Buyer’s deposit.” Obviously, in the case of a late close of escrow, the seller may not want to do that. After all, the buyer’s failure to close on time may be a breach. So, by using the NBP in this case, you may be unintentionally forfeiting your seller’s right to keep the buyer’s deposit.
On the other hand, the DCE is specifically provided for the late close situation. Paragraph 14E of the RPA states that “[b]efore Seller or Buyer may cancel this Agreement for failure of the other party to close escrow pursuant to this Agreement, Seller or Buyer must first give the other a demand to close escrow.” In other words, the contract specifically says to give a DCE in our circumstance. The DCE itself is consistent with what we are looking for, demanding that the escrow be closed “within 3 (or _____) Days After receipt of this…” DCE. It further provides that when given by the seller, she may (1) cancel the agreement; (2) sue for damages; or (3) sue for specific performance. The buyer may sue for damages or specific performance.
One question that has arisen in relation to the DCE is whether the number of days the Demand must include can be changed. After all, as you can see above, there is a blank that theoretically can be changed to some number other than 3. On the other hand, paragraph 14E, the only clause in the Purchase Agreement that even mentions the DCE, says nothing about how long the Demand must be. So, can you put any number in the blank? While the contract gives not direct answer, the best advice we can give you is no. The case law says that since close of escrow rarely happens when scheduled, demands to cancel cannot come out of the blue and be too short. That is why the 3 day period was chosen. As a result, the shortest period you should use is 3 days. If you want the demand period to be longer, you can use the blank for that. But don’t make it shorter. You will risk making your demand ineffective.
As always, please let us know if you have any questions.
