Here's an excellent blog post about the importance to agreeing to a workable mortgage commitment date. Often times, we see that a mortgage commitment is due within 2 weeks of the date of the Purchase and Sale Agreement.
In today's regulatory environment, that's virtually impossible for any lender to meet. Real estate agents, buyers and sellers musy realize that appraisals can not be ordered until 3 business days after disclosures have been mailed by the lender to the borrower. That means a week can slip buy before an appraisal is ordered, and several more days can elapse before it's actually done. Before the appraiser can even get his appraisal report in, the mortgage commitment clause is invoked. A mortgage commitment often times is not issued until the appraisal report is in and has been reviewed by underwriting.
Before writing in the due dates for a mortgage ccommitment on the Purchase and Sale Agreement, make sure that the time limits can be met. Take a few extre moments and speak with the buyer's mortgage lender before committing to a date.
This week, a very interesting decision involving the negotiation of a residential purchase and sale agreement came down from the Massachusetts Appeals Court in Coviello v. Richardson. Click here to view the decision. The case highlights the need for realtors and real estate attorneys to be proactive with respect to mortgage contingencies and requests for extensions.
The Facts
In the case, on February 12th the parties signed the standard form Offer to Purchase, which provided that a Purchase and Sale Agreement would be executed by 5:00pm on February 26th. Under the mortgage contingency clause of the offer, which gives the buyer the right to cancel if she cannot obtain financing, the buyer was required to secure a mortgage commitment by February 29th. The realtor, who prepared the offer, made the first mistake here: asking the buyer to obtain a firm mortgage commitment not even 2 weeks after the offer is signed was completely unrealistic.
Predictably, the buyer and her broker had immediate concerns that they would be unable to meet the mortgage commitment deadline. The broker asked the buyer’s attorney if he would ask the seller to agree to extend the commitment deadline for an additional week–a reasonable request.
The attorney, however, didn’t follow through on the request until 2 hours before the 5:00pm deadline to sign the purchase and sale agreement. The seller, who was dealing with a high-risk pregnancy, didn’t want to extend the deadline. No agreement could be reached, and there was no tender or signing of the purchase and sale agreement.
The buyer sued, claiming that the seller’s refusal to agree to the extension was a breach of the deal. The Land Court initially ruled in favor of the buyer, but the Appeals Court overruled the decision in favor of the seller, holding that a jury would have to decide whether the seller repudiated the contract or would have proceeded with the original terms. The buyer is now in no better position. She is out thousands of dollars in legal fees, and no closer to purchasing the property.
Take Away
The lesson for realtors and attorneys from this case is (1) make the mortgage contingency dates workable in the offer, and (b) if you are asking for an extension at the 11th hour, protect your buyer in case the seller refuses to agree.
This lawsuit may have been avoided if the realtor and buyer’s attorney were more proactive and thought things through. First, the realtor should have used a more realistic mortgage contingency deadline. In the current underwriting environment, realtors should allow at least 30 days if not more from the signing of the purchase agreement to the commitment date.
Second, the buyer’s attorney’s delay in asking for the extension until the 11th hour certainly didn’t help the situation here. He could have protected the buyer a lot more had he coupled the request for the extension of the mortgage commitment deadline with either (a) notice that if the seller would not agree, the buyer would opt out of the deal entirely, or (b) a tender of the purchase and sale agreement with the original deadlines (assuming the buyer would take on the risk of being unable to make the deadlines). This would have “boxed in” the seller to either agree to the extension or go through the deal, essentially calling her bluff. At least it would have enabled the buyer to have been in a much better position for litigation because now the fight is over whether the seller would have gone through the original deal.
To the credit of the realtor and attorneys involved, it’s much easier for me to play Monday morning quarterback now, but that’s what we do here on this Blog.
For more real estate legal content, check out the Massachusetts Real Estate Law Blog.
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