Mortgage Purgatory
All too often closings are delayed due to the failure of the mortgage company to process the loan documents in a timely fashion. Fortunately, most edlays are only one or two days and while a huge inconvenience to both the Seller and the Buyer they can be dealt with. In some situations the delays can drag out for extended periods of time causing major disruption to the lives of the Seller and the Buyer.
The first sign of a delay is usually not encountered until the last minute, meaning a day or two ahead of closing. The problem is that the Seller must make arrangements to vacate the property and that usually inivolves scheduling movers and arranging for a place to move to. The concern is that the Buyer will default and the Seller then has the cost of the move and two house payments to make.
Often, the Buyer's Agent will submit an Amendment requesting that the Seller extend the closing date. The Buyer's Agent will usually try to make this seem like it is no big deal and is a small technicality that the Seller must comply with. WRONG!
The Seller is under no obligation to extend the closing date for the convenience and protection of the Buyer. The issue is that the closing date is a critical, key, target date of the contract and if the Buyer fails to close the Earnest Money that the Buyer put up to guarantee their performance become subject to a claim of default by the Seller.
Since delays commonly occur it is not a statement of fact that missing the closing date will automatically entitle the Seller to claim and receive the Earnest Money from the Buyer. The courts have routinely rulled that the Seller must give the Buyer a little lattitude on the closing date. The length of time that the Seller must wait is a question of fact that a judge and a jury may have to decide, howver, reasonably short delays of a few days do not automatically cause the Buyer to be in default and lose their Earnest Money. If the delays continue a point in time is reached where the Seller is obviously entitled to claim the Earnest Money. That time is debatable and subject to litigation but is probably less than 2 weeks after the originally secheduled closing date.
The problem with signing an Amendment to extend the closing date for the Buyer is that the extension is one sided and benefits the Buyer at the expense of the Seller. By moving the closing date further out into the future a few days the Seller is moving the point when they can claim the Earnest Money forward by the exact same amount of time. Any time that a Buyer requests that the Closing Date be Amended and moved further out into the future the Buyer should give the Seller something of value to compensate for the accomodation. I generally suggest that the Buyer increase the Earnest Money and add a clause that if the new closing date is not met by the Buyer the entire Earnest Money (old plus new) will be immediately subject to forfeiture by the Buyer, otherwsie, the Buyer will have to operate with the clock ticking on their technical default on the contract to purchase the home.
I refer to the Buyer being in 'technical default' as the period of time between the original Closing Date and the time when the Mortgage Lender finishes getting the document prepared for the loan and getting them to the Title Company to complete the closing. If that period of time is only a day or two the Buyer has very little to worry about. As that period of time lengthens to become a week or longer the Buyer enters a period of time where they become very vulnerable to the Seller making a successful claim of default and obtaining the Earnest Money from the Escrow Account at the Title Company.
If you find yourself as the Seller of a home in the unfortunate positioin of having a delay in your originally planned Closing Date be careful about extending the Closing Date through Amendment without considering the possiblity that you are simply protecting the Buyer without any benefit. Make sure that you benefit from the extension.
The first sign of a delay is usually not encountered until the last minute, meaning a day or two ahead of closing. The problem is that the Seller must make arrangements to vacate the property and that usually inivolves scheduling movers and arranging for a place to move to. The concern is that the Buyer will default and the Seller then has the cost of the move and two house payments to make.
Often, the Buyer's Agent will submit an Amendment requesting that the Seller extend the closing date. The Buyer's Agent will usually try to make this seem like it is no big deal and is a small technicality that the Seller must comply with. WRONG!
The Seller is under no obligation to extend the closing date for the convenience and protection of the Buyer. The issue is that the closing date is a critical, key, target date of the contract and if the Buyer fails to close the Earnest Money that the Buyer put up to guarantee their performance become subject to a claim of default by the Seller.
Since delays commonly occur it is not a statement of fact that missing the closing date will automatically entitle the Seller to claim and receive the Earnest Money from the Buyer. The courts have routinely rulled that the Seller must give the Buyer a little lattitude on the closing date. The length of time that the Seller must wait is a question of fact that a judge and a jury may have to decide, howver, reasonably short delays of a few days do not automatically cause the Buyer to be in default and lose their Earnest Money. If the delays continue a point in time is reached where the Seller is obviously entitled to claim the Earnest Money. That time is debatable and subject to litigation but is probably less than 2 weeks after the originally secheduled closing date.
The problem with signing an Amendment to extend the closing date for the Buyer is that the extension is one sided and benefits the Buyer at the expense of the Seller. By moving the closing date further out into the future a few days the Seller is moving the point when they can claim the Earnest Money forward by the exact same amount of time. Any time that a Buyer requests that the Closing Date be Amended and moved further out into the future the Buyer should give the Seller something of value to compensate for the accomodation. I generally suggest that the Buyer increase the Earnest Money and add a clause that if the new closing date is not met by the Buyer the entire Earnest Money (old plus new) will be immediately subject to forfeiture by the Buyer, otherwsie, the Buyer will have to operate with the clock ticking on their technical default on the contract to purchase the home.
I refer to the Buyer being in 'technical default' as the period of time between the original Closing Date and the time when the Mortgage Lender finishes getting the document prepared for the loan and getting them to the Title Company to complete the closing. If that period of time is only a day or two the Buyer has very little to worry about. As that period of time lengthens to become a week or longer the Buyer enters a period of time where they become very vulnerable to the Seller making a successful claim of default and obtaining the Earnest Money from the Escrow Account at the Title Company.
If you find yourself as the Seller of a home in the unfortunate positioin of having a delay in your originally planned Closing Date be careful about extending the Closing Date through Amendment without considering the possiblity that you are simply protecting the Buyer without any benefit. Make sure that you benefit from the extension.
posted by DallasFlatFee at 4:59 PM
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