Loan Commitment Contingencies

 

QUESTION #1: If the property does not appraise for the purchase price, may the seller terminate the contract if the buyer still wishes to proceed?

My seller no longer wants to sell and is looking for a way to get out of the contract. If the property does not appraise for the purchase price, may the seller terminate the contract if the buyer still wishes to proceed?

No, the appraisal contingency in the Colorado Real Estate Commission Approved form is a contingency for the benefit of the buyer, not the seller. The buyer can essentially waive the contingency by not providing notice of appraisal dissatisfaction. If the buyer still wants to buy in spite of the low appraisal, the buyer may do so.

QUESTION #2: Do the sellers have the ability to kick the buyers out of the transaction because the buyer failed to obtain the loan commitment by the deadline?

I am the listing broker. My seller committed to sell the property through a contract formed on April 1. The contract is not scheduled to close until the end of June. The loan commitment contingency has passed and the buyer did not receive his loan commitment. The buyer did not send a notice seeking to terminate the contract.

My seller and I are not optimistic that the buyer will obtain the funds to close the deal. There are many other buyers who wish to buy this property. The seller needs to move quickly and receive the proceeds of the sale quickly to complete a move. Do the sellers have te ability to kick the buyers out of the transaction because the buyer failed to obtain the loan commitment by the deadline?

No. See §5b of the Real Estate Commission Approved Contract. The loan commitment contingency is deemed waived unless the buyer gives the seller notice of the buyer’s failure to obtain a loan commitment before the loan commitment deadline. If the buyer does not close, and some other contingency does not excuse the buyer from closing, the buyer will be in default under the contract. A substantial earnest money may help protect a seller from a buyer who waives the loan commitment contingency and later fails to close.

QUESTION #3: Does § 7a of the contract allow a buyer to compel the seller to produce a survey if the title company only needs an improvement location certificate to issue the title insurance specified in § 7a of the contract?

Does § 7a of the contract allow a buyer to compel the seller to produce a survey if the title company only needs an improvement location certificate to issue the title insurance specified in § 7a of the contract? In my contract, § 7a specified that the seller would pay for the improvement location certificate (ILC) or survey mentioned in § 7a, in an amount not to exceed $1000. The title company has stated that it merely needs an ILC (costing $150) to issue the title insurance.

The language in § 7a is not clear on this point. One way of reading § 7a is that it only requires the seller to pay for the least expensive surveying product necessary to induce the title company to issue the title insurance specified in § 7 a. The text is in a paragraph generally discussing title insurance. The spirit of the last paragraph in § 7a suggests that if the title company can get by with a less rigorous survey document (or no survey instrument), then the seller has no obligation to provide something which is not needed by the title company.

Yet, when read all by itself, the second sentence in § 7a may allow the buyer to require the seller to pay for a survey, even if the title company doesn’t need one. There are legitimate reasons why a buyer would want a survey (which is more rigorous than an ILC) even in circumstances when the title company doesn’t require a survey to offer survey protection. (These reasons will be discussed in next month’s column.)

Good arguments can be made for either position. A variation of the problem arises when the title company will issue survey protection without needing to see even an ILC. Perhaps future versions of the contract will clarify this issue.

A version of this article appeared in the Colorado REALTOR® News, the monthly publication of the Colorado Association of REALTORS®.

Jon Goodman is a shareholder with Frascona, Joiner, Goodman and Greenstein, P.C., a Colorado law firm. His practice areas include Real Estate,Brokerage Law, Contracts, Land Use, Leasing, Real Estate Title, Association Law, Business Law, and Finance. Contact Jon Goodman.

Disclaimer — Content is general information only. Information is not provided as advice for a specific matter, nor does its publication create an attorney-client relationship. Laws vary from one state to another. For legal advice on a specific matter, consult an attorney.

JONATHAN A. GOODMAN