Every year, millions of homes are sold and purchased across the globe. Purchasing a home involves several steps. For this reason, the process may not always proceed flawlessly. Routine inspections often reveal the need for repairs, and appraisals of buying price may happen. Termite infestations may also be uncovered during pest inspections. It is common for underwriters to ask lenders to provide additional documentation. Additionally, defects on the title may be uncovered. These are some of the factors that can lead to a delay in the closing date.
The standard contracts of sale that many attorneys use often indicate that closing would occur on or about 1st January 20XX, for example. In most states/ countries across the world, the date as contained in an agreement is usually fluid, particularly if it’s preceded by the phrase on or about. It is not common for closing to actually take place on the specific date given in a contract. The aforementioned phrase has been interpreted to mean that the prospective buyer or seller has a realistic period of time beyond that given date in which to seal the deal.
If everything progresses as planned, a closing can generally occur within two months after full execution of the agreement by both parties. Nevertheless, some real estate transactions fail to go on as planned. Even though a good number of transactions come to a close (unless the prospective buyer is incapable of securing finances), some end up in serious disagreements or litigation.
In case one of the parties is reluctant to close within good time, usually, prior to commencement of litigation, a lawyer representing that party who is still willing to close that deal can send a Time- of- the- essence letter to the second party. The TOE letter will propose a different closing date by highlighting the essence of time. If the recipient fails to close by that new date, a court of law can find them guilty of default of that contract of sale.
Please note that the TOE standard is something that is not statutory. It is often determined by courts and constantly varies depending on every case determined by courts of law. While courts do not clearly state the definition of reasonable time, a majority of lawyers agree that it should be about 30 days.
Nevertheless, an opposing party must be accorded reasonable time to take appropriate action. This is determined by the unique circumstances of a case.
Why Enough Time Must be Provided for Carrying out Due Diligence?
An agreement to purchase residential real estate property is something that can be legally enforced. Each contract has a provision for a closing date that must be approved by both parties. Most contracts include a period for carrying out due diligence. It allows a potential buyer to pull out with no reasons whatsoever. The buyer may also have specific reasons for changing their mind. For instance, inspections may reveal an unexpected level of repairs, grading issues, or infestation by pests.
If the prospective buyer comes across unexpected issues but is still willing to proceed with the deal, he/she can ask the seller to resolve those issues. If the seller is in agreement, both parties can decide to postpone that closing date. This will provide enough time for the seller to make the necessary corrections and improvements.
Processing and underwriting by lenders
Before the foreclosure crisis, a majority of lenders processed documentation within a few hours. For this reason, the closing could be done within a few days after the application for a mortgage.
Currently, many lenders across the world need more than 1 month to process and underwrite home loans. Due to the extra documentation and loan appraisal needed, lenders often ask for more time to go through loan applications. In such cases, a buyer may request for extension of the closing date.
Issues regarding title defects and home appraisals.
Title defects and property appraisals are problems that can also come up. A title defect, for instance, can prevent an owner from disposing of property to anyone. On the other hand, subsequent appraisals may force a seller to scale down the asking price. It may also compel a prospective buyer to enhance the down payment. In both cases, postponement of the closing date may be necessary to provide extra time for the resolution of those issues. The seller must be provided with notice of such issues. Furthermore, both parties must give consent for a new closing date.
What Needs to be Done When a Buyer Fails to Close on Time?
Failure by a prospective buyer to close a deal on time can lead to many problems. Typically, a sale contract consists of an acceptance date as well as a closing date. The contract can be seriously jeopardized if a buyer misses it (closing date). In most cases, the best solution is to carry that closing date forward. However, the seller may not necessarily agree with this arrangement.
Reasons why closing date may not be extended
With the passage of time, a property owner may have reasons to believe that value of their property has gone up. This may discourage one from postponing that date. The owner may also be convinced that the initial asking price was inadequate. Presumed value significantly contributes to decision making.
Additionally, the prospective buyer may have asked for repairs and improvements, which seemed unnecessary to the owner.
Parties often disagree during the sale/purchase process. In some cases, negotiations between buyer and seller may go northwards, leading to the development of negative vibes.
An owner may have a change of heart before the closure of that deal and may start looking for flimsy excuses to draw back.
Free Closing Date Extension Addendum Templates
There may be a need to postpone the closing date when certain conditions come up. For instance, the buyer or seller may not be ready to finalize that deal. Delays may also occur during the processing of mortgage applications.
Ideally, a sale agreement must consist of a date within which a sale/purchase is completed. It is usually agreed upon during negotiations and is often scheduled to be a reasonable time after acceptance of an offer.
Legally, both parties have an obligation to fulfill all terms and conditions before that date.
If one party- for one reason or another- fails to fulfill their obligations, the agreement becomes void.