“Closing time, every new beginning comes from some other beginning’s end.” Whenever there is a WRA Legal Hotline call about a transaction experiencing closing issues, I think of Semisonic’s 1998 song, “Closing Time.” Like the song states, real estate transactions also have beginnings and endings. A closing signifies the buyer’s beginning in the home and the seller’s time in the home coming to an end. The following questions contemplate when “closing time” doesn’t go as smoothly as expected.
Maintenance and damage between acceptance and closing
During the walk-through, the buyer’s agent and buyer discovered water damage from a leaking toilet. The buyer wants the damage repaired before closing or a price reduction. What is the best way to proceed in this scenario?
The Maintenance section on lines 465-467 of the WB-11 Residential Offer to Purchase provides:
“Seller shall maintain the Property and all personal property included in the purchase price until the earlier of closing or Buyer’s occupancy, in materially the same condition it was in as of the date on line 1 of this Offer, except for ordinary wear and tear and changes agreed upon by Parties.”
The provisions in the Property Damage Between Acceptance and Closing section on lines 468-477 of the WB-11 Residential Offer to Purchase indicate the following:
“1. If the property is damaged in an amount not more than five percent of the purchase price, the seller must:
• promptly notify the buyer, in writing
• restore the property
• provide the buyer with copies of all required permits and lien waivers no later than closing
2. If the property is damaged in an amount that exceeds five percent of the purchase price, the seller must:
• promptly notify the buyer, in writing, of the damage”
If the property damage is not more than 5% of the purchase price, the seller must notify the buyer in writing and restore the property. Additionally, the seller must provide the buyer with copies of all required permits and lien waivers no later than closing.
If the property damage exceeds 5% of the purchase price, the buyer then decides whether to cancel the offer or carry out the offer and receive the seller’s insurance proceeds and a credit in the amount of the seller’s deductible on his insurance policy.
The parties may agree to have a professional determine which services and associated costs are possible to help meet the terms and conditions of the offer to purchase. Alternately, the parties may execute an agreement relating to the damage via an amendment regardless of the value of the damage.
If the parties cannot reach a mutually agreeable solution, they should be referred to legal counsel. The licensee may refer the parties to legal counsel. To find an attorney, the parties could contact the State Bar’s Lawyer Referral Service (LRS). When calling the LRS, a legal assistant helps determine the nature of the potential dispute and can refer attorneys in the caller’s area who have practice in matters related to the potential dispute. They can visit the LRS online, or they may call 800-362-9082, Monday through Friday, from 8:00 a.m. to 5:00 p.m.
The transaction is set to close tomorrow. The buyer just completed the final walk-through, and it seems as though the grass has not been cut since the offer was accepted, and the grass is now several feet high. The listing agent said it is not the seller’s responsibility to cut the grass since it was not addressed in the offer. Isn’t the seller responsible for maintaining the property in the same condition?
If the grass was at “normal” height when the buyer wrote the offer, then arguably the seller should maintain the grass at that height per the Maintenance section of the WB-11 Residential Offer to Purchase. If the grass is not cut at the time of closing, the buyer may argue that the seller has breached by not maintaining the property in materially the same condition it was at the time of the offer.
Furthermore, depending on local regulations, the buyer may want to contact the city to see if the seller has been ticketed or fined for failing to maintain the lawn at a proper height. Any tickets or fines would likely be attached to the property, not the individual seller, in the same way as a tax bill or special assessment would be attached with the property. If there are existing tickets or fines, the buyer may consider contacting the title company to ensure these are reflected as closing costs owed by the seller.
Title insurance
The buyer and seller are using different title companies. The agents recognize that the place of closing will be at the place selected by the seller, per the offer to purchase. However, the lender is insisting that closing take place at the buyer’s title company of choice despite the seller wanting to close at the seller’s choice of title company. The lender has refused to fund the loan unless closing is at the buyer’s title company location. Can the lender do this?
Per lines 48-49 of the WB-11 Residential Offer to Purchase, the location for closing is “at the place selected by Seller, unless otherwise agreed by the Parties in writing.” As such, the physical location of closing is chosen by the seller. The buyer still has the buyer’s choice in title insurance provider.
The buyer may negotiate in the additional provisions or in an addendum for a specific place of transaction closing or the right to choose the place of closing. The parties can also amend the offer after acceptance to allow the buyer to choose the place of closing. The “place of closing” provisions of the WB-11 Residential Offer to Purchase identify the location of the closing, not the provider of the owner’s title insurance policy.
The buyer and the lender may sign the loan documents at any location acceptable to the buyer and the lender. The place of closing is where the real estate transaction will close, not necessarily where the buyer will sign the loan documents. In the event of a split closing — in which the buyer and lender obtain title from a company different from the title company providing the owner’s policy — the parties, the lender and the title company representatives will need to make arrangements to complete the transaction.
If the parties cannot come to an agreement and the lender will not issue the loan if closing does not take place at the lender’s preferred location, the parties should be referred to legal counsel.
The agent was alerted that the Iowa County register of deeds was compromised, and consumers would be experiencing closing delays. As such, the transaction would not be able to close on the date set for closing. The parties have decided to close in escrow. The title company handling the transaction said this was possible but would not be able to provide title insurance, so the title company recommended the parties seek legal counsel to draft an agreement. Can this transaction close?
The parties should be referred to their own private legal counsel to help facilitate the closing. If the parties and their legal counsel decide to close in escrow, the offer should be amended to reflect that change and any potential extension of closing.
Personal property and fixtures
A buyer is closing on a property today. During the walk-through, the buyer noticed old paint cans, a roll of insulation and other miscellaneous items in the basement. The listing agent claims these items are not personal property and do not need to be removed. What course of action should be taken?
The Occupancy section of the WB-11 Residential Offer to Purchase provides:
“Occupancy of the entire Property shall be given to Buyer at time of closing unless otherwise provided in this Offer at lines 548-570 or in an addendum attached per line 592, or lines 426-430 if the Property is leased. At time of Buyer’s occupancy, Property shall be in broom swept condition and free of all debris, refuse, and personal property except for personal property belonging to current tenants, or sold to Buyer or left with Buyer’s consent. Occupancy shall be given subject to tenant’s rights, if any.”
If a buyer takes occupancy of the property and the seller has not removed the debris, refuse and personal property, the buyer should consult the buyer’s attorney regarding a potential breach of contract claim.
The transaction is supposed to close next week. A water treatment system exists on the property, but it was not excluded in the offer. The listing agent informed the buyer’s agent that the sellers will remove the water treatment system because they will purchase it from the water treatment system company. Is a water treatment system considered a fixture that is automatically included with the property?
Water treatment systems are considered fixtures that are included in the purchase price unless excluded in the offer. Line 31 of the WB-11 Residential Offer to Purchase includes “water softeners and treatment systems” in the definition of “fixture.”
Lines 11-12 of the WB-11 Residential Offer to Purchase indicate that the purchase price includes “the Property, all Fixtures on the Property as of the date stated on line 1 of this Offer” and additional items as added in on the following blank lines.
The parties should be referred to legal counsel if they cannot negotiate a resolution on this issue.
