What To Do When the Buyer Cannot Close Escrow on Time
When the buyer cannot close escrow on time, that unfortunate situation can cause all sorts of problems. The main problem is related to the fact that purchase contracts contain an acceptance date coupled with a closing date. If the closing date is missed, at a minimum the contract is in jeopardy, at maximum the contract has expired. The common action is to extend the closing date, but the sellers might not agree.
Why Would Sellers Refuse to Extend the Closing?
Sellers might feel after a month has passed that property values might have gone up. Perhaps friends or relatives have consistently stated the seller did not sell for an amount they feel was a high enough price. A seller might be hoping for an opportunity to put the home back on the market to obtain a higher sales price. In fast-moving markets, prices tend to move up.
Further, perhaps the buyers asked for a request for repairs during the middle of the escrow that left a bad taste in the seller's mouth. Not all buyers and sellers get along during the escrow period. Sometimes negotiations head south and negative feelings develop. It's possible the seller might be looking for an excuse to get rid of the buyers.
It's probably important to point out that a seller is not always legally entitled to cancel because a court of law, for example, might see things differently. A lawyer might present a case to prove the buyer acted in good faith and the intent was to close. Therefore, the court could decide a seller might not have a legal right to terminate a contract simply because the time period has expired. There is little black and white in court. The only thing that is consistent is the amount of money it costs to prosecute and defend.
Still, it won't necessarily cause a seller to sign an extension of time agreement if the seller disagrees. A seller might also decide to no longer sell the property.
Why Would a Buyer Need an Extension to Close?
When a buyer cannot close on time, the document the buyer generally asks the seller to sign is an extension of time addendum. The seller will want to know why the buyer needs more time.
Ever since the inception of TRID, delays seem to have escalated. In defense of TRID, many times the delays are due to poor communication between the lender and closing agent or title company. Further, a rejection in underwriting is the stuff nightmares come from.
Borrowers face extreme scrutiny to obtain a loan. Not to mention, sometimes things from their past that they thought were buried—like short sales and foreclosures and personal judgments recorded in other states— have a way of popping back up. The reason for the delay much of the time can be traced directly to the lender.
Buyers can also face work or family-related issues. There are no guarantees that just because your life is running smoothly everything will continue that way during your 30- or 45-day escrow period. In fact, about the opposite is generally true. In fact, the time period between signing an offer to buy a home and closing is a prime time for an upheaval.
Sure-Fired Way to Coax a Seller Into Signing an Extension
When a buyer cannot close on time, a strategy that works well is to offer to release the buyer's earnest money deposit to the seller prior to closing. This presumes, of course, that the buyer is certain she can close escrow. However, if it's just a matter of a few more days, releasing the deposit to the seller is akin to putting your money where your mouth is.
It says the buyer is serious and confident about closing. It removes doubt from the seller's mind as well. With money in hand, that earnest money becomes nonrefundable. Escrow officers are typically the parties who prepare the instructions to release the earnest money deposit. The document will lay out the possibility that the escrow might never close and, if it does not, the buyer will not get a refund, in addition to the possibility that one of the parties could even die.
At the time of writing, Elizabeth Weintraub, CalBRE #00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.