Jul 07 2012

Contract Contingency

Published by

Contract Contingency-Dates and Deadlines

A typical Purchase and Sell Contract will have numerous dates and deadlines intended to track or move the progress of the Contract requirements. Failure to comply with these in a timely manner may put the Contract at risk of termination or unknowingly place an Earnest Deposit  in a forfeitable position. Don’t let that happen to you.  

It is critical for buyers and sellers alike to keep a very close eye on the response deadlines that are contained in offers, counteroffers and amendments. This is especially true when there is a bank involved on the purchase. Many of the automated systems banks and mortgage servicers use to manage these documents will completely kill all the hard-won progress that has been made on your application or transaction request if your response is not submitted on time. And we see many Loan Underwriters that continue to ask new questions and seek new information just days before the scheduled Closing.

   Contingency Removal Due Dates. Most buyers these days negotiate some sort of contingency into their property purchase contract.  A contingency is simply the right to back out of the deal, and usually without any penalty, if done timely. Real estate contracts provide for a number of possible and some very typical contingencies such as Title approval, Documents, Insurance, Loan, Closing Date, etc. Some of the most common buyer contingencies empower buyers to bail out if, prior to the deadline expiration: 

·         the property has condition problems that are revealed by a buyer’s inspections,

·         the property doesn’t appraise for the agreed-upon purchase price, and/or

·         the buyer’s loan falls through.

Review your Contract carefully and familiarize yourself with all of these Dates, Deadlines and Contingencies..  

   Objection Period Expires.  Here’s where contingencies can go wild. For a limited time they allow buyers to back out, for certain reasons, but if the buyer doesn’t proactively object or back out by the deadline of this ‘objection period,’ they lose the right to do so, and may lose their deposit or incur additional liability if they try to cancel the deal later.  Deadline extensions may sometimes be requested but are only granted if approved by mutual agreement of all the Parties, so don’t bet your Contract or deposit on it. 

Contingency periods – the timeline in which the buyer has the right to back out, without losing their deposit money or incurring other liability – run from the date the buyer and seller both agree in writing to the terms of the sale, through the contingency deadline dates set forth in the contract.  These contingency deadlines, the date by which the buyer must either exercise their contingencies (signing a form backing out of the deal, waiving the right to back out, or simply allowing provisions to expire past deadline without objection) are all negotiable at time of Contract. They may typically run anywhere from 7 to 30 days and often may increase the buyer’s deposit and/or make any existing deposit non-refundable. For a buyer, the contingency timeline is a flurry of inspections, appraisals, responding to loan underwriter requests and the like. It’s critical to keep an eye on the calendar so that you can remove them on time or request an extension in advance, if necessary, avoiding demands and drama with the seller.

 You can see why this is an essential timeline to track. If your inspections and repair estimate gathering, appraisal or loan approval look like they might run past this deadline, you absolutely must secure an extension of this time period or be prepared to make a decision whether to move forward without the contingency or to back out of the deal by the time it runs out, all things considered.

The Broker, agent, lender and others will all try to help you manage your contract and to be aware of these important deadlines, but that responsibility ultimately remains on you alone.  Your contingency protection is all about the deadlines.

 

No responses yet

Trackback URI | Comments RSS

Leave a Reply