If you think about the basics, the offer documents a promise for a promise. The buyer promises to pay money, and the seller promises to provide the deed. Granted, in most cases, the promises are conditional, and for the WB-11 Residential Offer to Purchase, there are nine pages detailing those promises. Among those promises is the duty of good faith and due diligence standard by which the parties act to meet those promises. Notwithstanding that standard, the WRA Legal Hotline receives calls daily about what happens when one or the other party becomes a deadbeat, failing to meet those conditions or follow through with their promises. This article addresses some of the frequent issues and what a broker can do when parties break their promises.
Buyer's remorse
The offer was accepted a week ago, and the buyer’s family is suggesting it is not a good idea for the buyer to purchase this property, so the buyer wants to back out of the offer. How to proceed?
A buyer may, at any time, ask the seller to be released from the contract with a WB-45 Cancellation Agreement and Mutual Release (CAMR). A CAMR may be used by a party seeking to be released from a contract for any reason or no reason. If the seller were to agree, the buyer would not need to seek advice of counsel for a legal opinion regarding whether the buyer has a right to be released from the contract.
If the seller does not agree to the CAMR, it is within the scope of real estate brokerage to review the terms of the offer with the buyer. A general discussion of the duty of good faith and due diligence and the default provisions is appropriate. The agent must, however, be careful when discussing the buyer’s legal rights, because real estate licensees may not engage in the unlicensed practice of law. Whether the buyer may have a contractual right to get out of the contract is a topic of conversation for the buyer and legal counsel. The agent may refer the buyer to private legal counsel to review the transaction and provide the buyer legal advice.
If the buyer does not have an attorney, the buyer may refer to the Wisconsin Bar Association Lawyer Information and Referral Service for assistance at www.wisbar.org/forpublic/ineedalawyer/pages/lris.aspx.
Late earnest money
If additional earnest money is part of an offer to purchase and the earnest money is not received within the time frame indicated in the offer to purchase, but the seller indicates that he is willing to wait a few extra days to get the earnest money, do agents need to have an amendment extending the time frame for delivery of the earnest money?
A licensee who is aware the earnest money has not yet arrived should notify all parties. Because the offer does not refer to the actual receipt of the earnest money, the first question to be asked is whether the buyer has in fact timely mailed, or commercially or personally delivered, the earnest money as required by the offer. If the buyer has not, the seller has choices: terminate the offer by written notice, amend to extend the deadline, or wait. The buyer, knowing he has missed a deadline, may initiate an amendment to extend the deadline. The role of the broker is to educate the parties, offer options and follow the instructions of the parties because it is ultimately up to the parties to amend or not. For a buyer, it would be advantageous to have documentation of an extended deadline, but without additional concessions given to the seller, the seller may be hard pressed to agree. If past the deadline, the seller may have the legal ability to terminate the offer and may do so if a better offer is presented. The facts and circumstances of each transaction will influence the parties’ decisions.
Buyer refuses CAMR
The buyer’s offer included a financing contingency. The seller asked the buyer for evidence of application for financing, which the buyer provided. The deadline for delivery of loan commitment has passed, and the seller has other interested buyers. The seller, per lines 247-249 of the WB-11, issued a notice of termination for the buyer’s failure to deliver the loan commitment. The seller concurrently delivered the notice and a CAMR, but the buyer refuses to sign the CAMR. Can the seller accept another offer in primary position?
It was appropriate for the seller to deliver a CAMR along with the written notice of termination. However, until the CAMR is signed by all parties and delivered, the parties still retain rights and obligations per the contract. If a CAMR expires before it is signed and delivered, the broker may draft another CAMR upon request of the party. Until the seller has a fully executed CAMR with the buyer or a legal opinion from the seller’s private legal counsel, any subsequent offers should be accepted in secondary position or contingent upon receipt of a CAMR ending the first offer or receipt of legal advice that claims arising out of the prior offer will not affect the seller’s ability to transfer clear title.
For further discussion of CAMR usage, review pages 7-9 of the September 2015 Legal Update, “One Page Form Revisions,” at www.wra.org/LU1509 and Legal Update 00.03, “Cancellation Agreement and Mutual Release; and Bill of Sale,” at www.wra.org/LU0003.
Unresponsive seller
The buyer’s agent submitted an offer to the listing agent. The buyer’s agent suspects that the buyer’s offer was not properly submitted to the sellers or perhaps was not submitted to the sellers. The binding acceptance date has passed, and there is no response. How to proceed?
When a seller does not accept and deliver the accepted offer by the deadline for binding acceptance, the seller’s answer to the buyer’s offer is “no.” If the buyer still wants the property, the buyer may initiate a counter-offer to continue negotiations. Alternately, at any time, the seller can initiate a counter-offer to continue negotiations. Even though a buyer may wish for a seller to agree to sell the home, the buyer cannot force the seller to do so. The agents may work together to communicate with the seller to illicit a response to the buyer’s submitted offer. Whether the offer was presented to the seller is a secondary question. By law, the listing broker is required to promptly present all offers, unless contrary to the seller’s instructions. Professional courtesy is to communicate broker to broker regarding the presentation and seller’s response to a buyer’s offer.
Death of party
The buyer and an elderly seller have an accepted offer. The buyer is concerned about the seller’s health. What happens if the seller dies after an offer is accepted but before closing?
Knowing a party has health issues, the parties may attempt to expedite the closing of the transaction. Lines 298-300 of the WB-11 Residential Offer to Purchase provide that the agreement binds and inures to the benefit of the parties to the offer and their successors in interest. In the event of the death of a party during a transaction, the agents should maintain communication with the buyer and the representative of the seller’s estate about the transaction and proceed in accordance with the direction of the parties or legal counsel representing the estate. The transaction may stall for a bit until the proper authority is provided to the appropriate person to act as the successor in interest for the seller. The legal counsel for an estate will determine how to proceed with the administration of the estate and the completion of, or if all parties agree, the termination of, the transaction.
Earnest money
The buyer applied for his loan and provided a loan commitment, which was delivered with the required written authorization. The buyer failed to meet the conditions in the loan commitment, so the lender will not fund the purchase. The buyer requested an extension, but the seller refused, and now the closing date has passed. The seller is demanding the earnest money be returned, and the buyer has gone MIA. Can the broker disburse the earnest money without a CAMR?
A buyer and a seller have the duty to use good faith and due diligence in completing the terms and conditions of the offer to purchase; see lines 278-279 of the WB-11. The fact the buyer failed to meet the conditions of the loan commitment does not release the buyer from the offer to purchase. If the buyer fails to uphold his side of the agreement, one of the seller’s potential remedies is retention of earnest money, per lines 281-284 of the WB-11.
A broker is unable to disburse the earnest money based upon the direction of one party only or based upon one party being non-responsive. Wis. Admin. Code § REEB 18.09(1) & (2) establish the rules allowing a broker to disburse the funds. Nowhere in those rules does it provide a safe harbor for a disbursement based upon the direction of the seller alone.
Wis. Admin. Code § REEB 18.09(1)(b) requires a written earnest money disbursement agreement signed by all parties, not just by the seller. Pursuant to lines 376-394 of the WB-11 Residential Offer to Purchase, a broker is to do nothing with the earnest money for 60 days after the scheduled closing date unless the parties reach a written agreement for the disbursement of the earnest money. The broker may wish to write a memorandum or letter to the buyer, the seller and their respective attorneys, if any, pointing out lines 376-394 and explaining that this is how the earnest money disbursement must be handled. It is then up to the parties to work out their differences by negotiation or by going to small claims court.
Tracy Rucka is Director of Professional Standards and Practices for the WRA.