3 Critical Legal Errors and How to Avoid Them - FSBO Sellers Beware!
Darren Meade
May 26, 2007
3 Critical Legal Errors and How to Avoid Them
Legal Error #1 - Not Disclosing Everything
It’s your job as a home seller to disclose everything to the person purchasing your home. If the deal falls through, it falls through. It doesn’t matter when compared to the legal nightmare you could be in if you don’t disclose everything and the buyer slaps you with a lawsuit later on. Yes. It is possible. So, what specifically do you need to disclose? First, any problems the home has. Additionally, you should point out any repairs that need to be made. Do it in writing and have the buyer sign off on it. This will protect you down the road and ensure a worry-free transaction. It is important to note that a seller has no
liability if they did not know about a problem. But don’t try to use this as a loophole. If you ever get into a legal situation and you are caught in a lie and it is proven you DID know about the problem and failed to disclose, you will be in a heap of trouble.
Legal Error #2 - Using a Vague Financing Contingency Clause
Did you know that failure of the financing contingency is the greatest cause for cancellation of a contract for the sale of residential property? It is also the greatest cause of disputes because most contract clauses commonly used are too vague and create uncertainty. Usually the buyer needs a mortgage. If they can’t qualify, the financing contingency is the buyer's escape clause. So, your offer should clearly specify the ground rules about the financing contingency. If the buyer applies promptly for their mortgage, they should have an answer within 30 days. After the specified time what is required? What does the contract say? A typical loan contingency clause reads: "The Buyer may cancel the contract if he is unable to obtain an 80% mortgage for 30 years at 7.5% fixed rate within 30 days." So what happens if the Buyer's loan is rejected? The above clause is vague and doesn’t address this important issue. It does not state
what notice is required. A better clause would say the following: "If the Buyer cannot obtain a mortgage within 30 days, Buyer must notify Seller (in writing within 30 days of the date of this contract) of his election to cancel this contract. Failure to give notice of cancellation within such time period constitutes waiver of this financing contingency. This clause is clear; and the Buyer's obligations are clear; so there is no confusion about what is required and when.
Legal Error #3 - Making Your Offer Contingent upon Buyer’s Sale
Your Buyer may offer that they will purchase your home, but only after they successfully sell their old home. Through no fault of the Buyer, their other transaction may fall apart, causing cancellation of the deal. So, how do you deal with this? Placing a strict time limit on this type of contingency is the only defense. You need to specify, in writing, how long the Buyer has to sell their current home before your deal will automatically terminate.
DID YOUR REAL ESTATE AGENT MAKE YOU AWARE OF THESE IMPORTANT
LEGAL ISSUES?
If the answer is no, or if you haven’t chosen an Agent yet, you need to find and hire an Agent who is aware of these and other important legal concerns. We would like to help you do just that, FREE.
We offer a FREE “Agent Locator Service”. Because we are “in the business”, we know exactly who the best Real Estate Agents are. We would be happy to introduce you to a top agent who is experienced and knows the ins and outs of Real Estate legalities.
Legal Error #1 - Not Disclosing Everything
It’s your job as a home seller to disclose everything to the person purchasing your home. If the deal falls through, it falls through. It doesn’t matter when compared to the legal nightmare you could be in if you don’t disclose everything and the buyer slaps you with a lawsuit later on. Yes. It is possible. So, what specifically do you need to disclose? First, any problems the home has. Additionally, you should point out any repairs that need to be made. Do it in writing and have the buyer sign off on it. This will protect you down the road and ensure a worry-free transaction. It is important to note that a seller has no
liability if they did not know about a problem. But don’t try to use this as a loophole. If you ever get into a legal situation and you are caught in a lie and it is proven you DID know about the problem and failed to disclose, you will be in a heap of trouble.
Legal Error #2 - Using a Vague Financing Contingency Clause
Did you know that failure of the financing contingency is the greatest cause for cancellation of a contract for the sale of residential property? It is also the greatest cause of disputes because most contract clauses commonly used are too vague and create uncertainty. Usually the buyer needs a mortgage. If they can’t qualify, the financing contingency is the buyer's escape clause. So, your offer should clearly specify the ground rules about the financing contingency. If the buyer applies promptly for their mortgage, they should have an answer within 30 days. After the specified time what is required? What does the contract say? A typical loan contingency clause reads: "The Buyer may cancel the contract if he is unable to obtain an 80% mortgage for 30 years at 7.5% fixed rate within 30 days." So what happens if the Buyer's loan is rejected? The above clause is vague and doesn’t address this important issue. It does not state
what notice is required. A better clause would say the following: "If the Buyer cannot obtain a mortgage within 30 days, Buyer must notify Seller (in writing within 30 days of the date of this contract) of his election to cancel this contract. Failure to give notice of cancellation within such time period constitutes waiver of this financing contingency. This clause is clear; and the Buyer's obligations are clear; so there is no confusion about what is required and when.
Legal Error #3 - Making Your Offer Contingent upon Buyer’s Sale
Your Buyer may offer that they will purchase your home, but only after they successfully sell their old home. Through no fault of the Buyer, their other transaction may fall apart, causing cancellation of the deal. So, how do you deal with this? Placing a strict time limit on this type of contingency is the only defense. You need to specify, in writing, how long the Buyer has to sell their current home before your deal will automatically terminate.
DID YOUR REAL ESTATE AGENT MAKE YOU AWARE OF THESE IMPORTANT
LEGAL ISSUES?
If the answer is no, or if you haven’t chosen an Agent yet, you need to find and hire an Agent who is aware of these and other important legal concerns. We would like to help you do just that, FREE.
We offer a FREE “Agent Locator Service”. Because we are “in the business”, we know exactly who the best Real Estate Agents are. We would be happy to introduce you to a top agent who is experienced and knows the ins and outs of Real Estate legalities.