Coronavirus: Monitor Lenders and Protect Your Sale
The Coronavirus pandemic and related social distancing measures mean many financial institutions have a reduced work capacity. They have staff out sick. The folks who are still working are often working from home. Many of these companies adopted home-based working very recently and are still learning how to do it. So, it’s reducing productivity for loan officers, underwriters and staff, even the ones who are working.
Relatedly, economic uncertainty gives Sellers under contract extra incentive to complete their deals. The stock market crash and possibility of a recession mean that a Seller who loses a deal today may not be able to sell at the same price next month. They’ll need to either drop the price or wait until the market recovers to sell. So, sellers and their realtors have special incentive to protect their contracts. This article includes some basic strategies for doing that.
1) Get Loan Status Updates.
Every seller has a right to reasonable information about loan status. Most contracts include a provision expressly requiring the Buyer to provide this information. The Arizona Association of Realtors form contract has one of the more elaborate provisions. It promulgated a full form to query lenders regarding the status of a loan. And the standard form contract requires the form be completed within ten days of contract acceptance and updated upon the Seller’s request.
Commercial contracts may have similar, less elaborate provisions. When they exist, these provisions require the Buyer to give the Seller reasonable information about financing. Be sure to carefully examine the language; some place the onus on the Buyer to provide the information on his own. Other places require the Seller make a request. Take advantage of whatever provisions the contract has to stay informed.
Even without express contractual provisions, Sellers can protect their deals. Arizona law allows parties to contract to request assurance when they reasonably suspect the other party won’t or can’t perform. The current economic circumstances justify making such a request. Sellers availing themselves should put the request in writing. They should comply with the relevant notice provisions in their contract (e.g., emailing if allowed by contract, overnighting or sending certified as applicable). And they should simply and factually explain the Seller’s concern about performance and request assurance. They should further request documents from the lender showing its ability and willingness to fund the loan.
There’s an old aphorism: the squeaky wheel gets the oil. In times like these, sellers who actively monitor loan status are most likely to see buyers perform.
2) Pay Attention to Proof of Funds.
In contracts without a financing contingency, Sellers and their agents should pay special attention to proof of funds. Cash sales almost always include a proof of funds requirement. This proof of funds often receives inadequate attention. Take a close look at the proof of funds and confirm it’s valid. Check for funds on deposit in a financial institution or funds that are immediately available without further underwriting.
3) Use Cure Notices.
Sellers and brokers dealing with this should diligently issue cure notices when they receive inadequate documentation. Under most real estate contracts, failure to issue a cure notice waives a party’s recourse. Be sure to carefully put the cure notice in writing. Spell out the breach of contract in as much detail as possible. And comply with contractual provisions for delivering notice.
At a minimum, issue a cure notice upon a failure to fund the transaction. Moreover, scrutinize the proof of funds or loan status information, and promptly send out a cure notice when that isn’t satisfactory. Once that happens, the Buyer has a deadline to correct the problem; and hopefully he does. Then the deal is saved, and everyone gets what they wanted from the transaction.
Conclusion
This Coronavirus pandemic will require extra diligence from parties to real estate contracts. But the diligent can keep their deals intact.
Samuel Doncaster is an experienced trial lawyer focused on resolving real estate disputes. Call 480-616-9377 to discuss your real estate situation in more detail.