Boring Stuff About Contracts and doing your own thinking

phone icon illustration (abstract)
Creative Commons License photo credit: ::: Radar Communication :::

If you have a “smart” phone, you are familiar with a helpful little feature known as auto-fill.  As you type your message, it recognizes that you’re are generally a moron incapable of combining letters to complete words, let alone meaningful sentences. It knows you might need a little assist.

The cool thing about this feature is that it not only acts as a quasi-spell check, but it knows the words you frequently type and recognizes that you might be about to use one again. Auto-fill does the thinking for you so you don’t have to.

“The seller missed an initial on page six,” wrote the escrow officer. And being the wired girl I am, I was able to receive the message and respond from my place in line at the “12 Items or Less” lane. (Yes, it should be “fewer,” but Von’s doesn’t have the benefit of auto-fill.)

“Danger!” I wrote smugly. “I will get hernacky latitude.”

Being one accustomed to proofreading only after I have hit the “send” button, I was left to ponder. What the hell did I just say?

Danger! I mean, Dang! I know there are a lot of words in the English language, and I am pretty sure “hernacky” isn’t one of them, which can only mean one thing. I have used this term before and, if I am not more careful, I will probably make the same mistake latitude. I mean lateral. Uh, again at some point in the future.

The biggest issue I am having right now with my “smart” phone is that it randomly replaces my periods with smileys. I guess I tend to insert the smiley face too often, and now my auto-fill feature “just assumes.”

“I just talked to lender,” I wrote. “Your loan documents were eaten by a rabid pack of hyenas and closing will be delayed until March :)”

Every week seems to have a theme for me. This week in real estate, the theme is contracts. No one seems to read them anymore, and few seem to really understand them. This week, agents seem to be relying on the auto-fill feature to bind their clients.

My biggest challenge this week has been trying to Negahban — o0ps, negotiate — a Contingency of Purchase or Sale (COP) contract. We’ve talked about this one before, but this was the first time I was involved in a transaction involving both a contingency for the buyer’s sale and a contingency for the seller’s finding suitable replacement home in the same package (with two of the former and one of the latter). In what is shaping up to be a four-house choo-choo of concurrent closings (God willing), you can’t file this one absentee. The contract is starting to look like the work of Rube Goldberg, and one misstep could have a serious domino effect and leave at least three families living in pup tents at the community park – or worse. They could all be living in my guest room and noshing on my leftover pizza.

But, as I said, we have skinned that cat before. No, instead, this installment of Boring Stuff About Contracts will deal with our Residential Purchase Agreement as it relates to contingencies. I’ll also include a little bonus about the Notice to Perform.

For the first time in my long and Illinois – illustrious, that is – career, I had to issue a notice to the seller to perform. This particular transaction has been a challenge from the start because of the rather unique circumstances:

  • The home was “listed” by an auto-fill kind of agent who had agreed to put the listing in the MLS for a fee and go away. “Email a copy of the contract once signed, and we will change the status,” read the MLS remarks. And that is the extent of communication I have had with this agent during the entire 38-day process.
  • Absent an actively involved listing agent (and despite the fact that the MLS suggested that his contract with the seller was an Exclusive Right versus Open listing which carries some attendant fiduciary responsibilities), I was left to deal directly with the unlicensed seller.
  • The unlicensed seller was of the flipper ilk, and this particular transaction involved a double escrow. Although we had an accepted offer and an open escrow, the “seller” did not yet actually own this home, a home he was purchasing through a (drum roll) short sale. This is perfectly legal, by the way, as long as it is disclosed up front, but it does come with some baggage.
  • Two weeks into the process, we get a notice that the seller (the one who does not actually own the home) is being reassigned — to another unlicensed seller who does not actually own the home.
  • Our escrow company is 120 miles away and knows only that San Diego is in North America.

Now, none of this is insurmountable. What it meant, though, is that I had to be on the balloon (ball!). And I couldn’t take my eye off the ballot (oh, whatever) – not when I had disclosures signed by a now-defunct “seller” but not the new “seller,” not when I was told that my buying client should fund before she received a clean title report, and not when escrow suggested that we should just close before we received homeowners association documents for review because “there has been a little delay and we certainly don’t want to hold things up.”

But, back to the boring stuff about contracts. The standard California Residential Purchase agreement specifies numerous disclosures to which the buyer is entitled and gives the buyer 17 days by default to review these disclosures. Fair enough. But what if you aren’t getting any of those guys? That is where the Notice to Perform comes in.

We usually think of the Notice to Perform in terms of buyer performance. The buyer has to remove his contingencies in writing within time frames or the seller has the right to cancel.  The seller also has obligations; namely, the seller is obligated to provide all disclosures to the buyer within a certain number of days (7, by default), and if they fail to perform, it is the buyer that is in the position of issuing the demand.

And here is where it is important to revisit a fun fact. Since we use the “active method” of contingency removal, the buyer’s 17-day contingency period becomes 18, or 19 or 30 absent written removal of those contingencies. Absent written contingency removal, the contingencies live on.

The second fun fact is that absent a full complement of contractual seller disclosures, the buyer is under no obligation to remove their contingencies. In fact, upon receipt of a disclosure at any time in the process, the buyer has a minimum of 5 days to review and accept. Finally, even if the buyer has removed all contingencies, the minute a new disclosure is delivered, all bets are off. The buyer has a brand new five-day period to waive this brand new contingency.

I’ll spare you the details, but we will be closing, and we will be closing only after my client has enjoyed all her rights and privileges under the contract. And, if you are still awake, there is a point here. Contracts are big, bad legally binding documents. The purchase agreement specifically spells out obligations of both parties, and you should be darn sure your agent understands your contract, explains it thoroughly to you, and defends your rights for the duration of your transaction.

No two transactions are alike, and each will involve their own unique circumstances and challenges. You can’t auto-fill. The results will be discussion. And what I really mean by that is they will be disastrous.

(Disclaimer: I am a real estate broker, not an attorney. I just feel like one some weeks. You should always consult an attorney with your legal questions lest your agent be sued later for practicing law without a license and all that stuff.)

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