Due Diligence and Contract Termination

I recently sold a home in Brightwood Trails and the builder didn't ask for a Due Diligence fee.  I feel lucky for that as both buyers and sellers seem to think that Due Diligence fees are negotiating tools to hit each over the head with.

Release Date: 08/30/2016

John Wait, Martin & Gifford, PLLC

QUESTION: During the due diligence period, my seller received a Form 390-T signed by the buyer stating that the buyer would receive both the earnest money deposit and the due diligence fee on termination. My client disagreed with the due diligence fee portion of the buyer’s 390-T, and responded by sending the buyer a revised 390-T signed by the seller stating that the buyer would only receive the earnest money deposit on termination.

It seems like the parties both agree as to termination and who gets the earnest money, and I just received another offer. Is the contract terminated? Do I need to advise my client to seek legal counsel before he signs the new offer?

ANSWER: We don’t believe the contract is terminated yet based on your facts. Paragraph 6 of Form 390-T states: “This Termination of Contract and Release shall be effective on the date that it has been signed by all of the Parties.” Even though both parties have signed the same form, they disagree about the terms on which they will agree to terminate the contract. This means that both forms are merely an offer from each side to terminate, and unless one of them signs the other’s form, then the offer remains unaccepted.

Although paragraph 5 of Form 390-T only addresses disbursement of the EMD, the buyer has modified it to provide for a refund of the due diligence fee as well.  That’s okay, but unless and until the parties are on the same page regarding all terms of their agreement to terminate, their contract hasn’t been effectively terminated in our view.

You might want to inform the buyer’s agent that the buyer has no right to a refund of the due diligence fee absent a breach of the contract by your client; and if they continue to delay termination, they will risk losing their earnest money deposit as well. As for your client, Standard of Practice 1-7 requires you to advise them to seek legal advice before accepting the second offer, unless the acceptance of the second offer is contingent on the termination of the existing contract.

NC REALTORS® provides articles on legal topics as a member service.  They are general statements of applicable legal and ethical principles for member education only.  They do not constitute legal advice.  The services of a private attorney should be sought for legal advice.

© Copyright  2016. North Carolina Association of REALTORS®, Inc.  This article is intended solely for the benefit of NC REALTORS® members, who may reproduce and distribute it to other NC REALTORS® members and their clients, provided it is reproduced in its entirety without any change to its format or content, including  disclaimer and copyright notice, and provided that any such reproduction is not intended for monetary gain.  Any unauthorized reproduction, use or distribution is prohibited.

Cash or Finance in Brightwood Trails

This happened to me when I purchased my home in Brightwood Trails two years ago.

Can buyers be held to their representations regarding financing?

Release Date: 08/02/2016

Bill Gifford, Martin & Gifford, PLLC

QUESTION:  In recent months, I have had several transactions where buyers who have represented that they do not have to obtain a new loan in order to purchase the property have later notified me that they will be financing their purchase with some sort of loan. I suspect that each of these buyers intended all along to obtain a new loan, but checked the "does not" box in paragraph 5(a) of the Contract in order to make their offer look more attractive. Is there anything I can do to protect my seller-clients from this tactic?     

ANSWER:  Unless you can prove that a buyer misrepresented whether he or she needed financing, that buyer's subsequent decision to obtain a loan would not give your seller-client the right to terminate a contract. However, we do have a few suggestions. First, we strongly encourage you and your seller-clients to heed the following advice which appears in the note at the end of paragraph 5(a): "If Buyer represents that Buyer does not have to obtain a new loan in order to purchase the Property, Seller is advised, prior to signing this offer, to obtain documentation from Buyer which demonstrates that Buyer will be able to close on the Property without the necessity of obtaining a new loan." If a buyer is able to provide the requested documentation, it is much more likely that he or she will proceed to close without financing, or will at least be able to easily obtain any financing that he or she decides to seek.

You should also consider having an attorney-drafted addendum available that your seller-clients can insist on attaching to the Contract whenever an offer is received with a "no new loan" representation. The addendum could impose fairly serious consequences on any buyers who decide to seek financing after representing that they do not need to do so. For example, the addendum could give the Seller the right to terminate the contract, and retain the Buyer's Earnest Money Deposit, in the event the Buyer seeks financing in connection with the purchase of the Property.

Buyer agents who employ the tactic you describe are cautioned that any buyer who will need to obtain a new loan in order to purchase a property, but represents otherwise, is engaging in conduct which constitutes a breach of contract. Paragraph 1(e) of the Contract states that the Earnest Money Deposit shall be paid to Seller in the event of a breach by Buyer. Furthermore, buyer agents who are aware of intentional misrepresentations being made by their clients are engaging in conduct which violates both North Carolina's Real Estate License Law and Article 1 of the REALTOR® Code of Ethics. 

NC REALTORS® provides articles on legal topics as a member service.  They are general statements of applicable legal and ethical principles for member education only.  They do not constitute legal advice.  The services of a private attorney should be sought for legal advice.

© Copyright  2016. North Carolina Association of REALTORS®, Inc.  This article is intended solely for the benefit of NC REALTORS® members, who may reproduce and distribute it to other NC REALTORS® members and their clients, provided it is reproduced in its entirety without any change to its format or content, including  disclaimer and copyright notice, and provided that any such reproduction is not intended for monetary gain.  Any unauthorized reproduction, use or distribution is prohibited.

HomeTown Hero at Brightwood Trails in Durham, NC

WOW I closed another HomeTown Hero buyer at Brightwood Trails in Durham, NC.  What a great program for Vets, Safety Workers, health care workers and others.  Along with a contribution from Parkmont Lending I also offer a contribution to the buyer.

This saves the buyer potentially thousands of dollars depending on the price range.  This was a new construction home from CalAtlantic so it took over 6 months to close.  In that time frame there were a few snags but we navagated them and the buyers were quite happy.  All in all just another great transaction for a HomeTown Hero.