Since the WA state legislature specifies the exact form of the property disclosure (commonly known in NWMLS land as the form 17), the clock on the buyer’s right to rescind their purchase and sale agreement based upon review of the form 17 will not start running. (Of course the regular disclaimers apply: I’m not providing legal advice, get your own appropriate legal counsel, etc., etc. )

According the RCW’s, a buyer may rescind their purchase agreement by providing written notice within 3 business days of receipt of the property disclosure form (without a reason).  Until the seller provides a “valid” form 17, the 3 business day clock doesn’t start.  This means a buyer would have legal basis to “get out” of a transaction… all the way up to closing if the seller fails to act.

I made the follow comment to a post made by Jason Mook: Switching Boats Mid Stream.

This issue concerns the typical financing contingency found in most real estate contracts. In essence, the financing contingency says the purchase and sale of a property is subject to the buyer obtaining financing. If the buyer can’t obtain financing, they can’t buy the property (they won’t have the money). The purchase and sale agreement is terminated and the buyer’s earnest money is returned. But, just because a buyer is unable to obtain financing under the strict terms of the contingency, doesn’t always mean they can terminate the agreement and get their earnest money back. They have to have made a good faith effort.

Jason – A stimulating post. I agree with your position as far as it goes.

To my mind, and from a seller’s perspective, as long as the buyer is making a good faith effort to obtain financing, you’d want to give the buyer the benefit of the doubt and let them pursue (within a reasonable time frame with the seller’s agent continuously monitoring, etc.) financing.

In your scenario, the buyer switches lenders after; 1) the seller receives a loan commitment letter per NWMLS 22a and 2) the underwriter subsequently fails the file.

However, consider the scenario where a buyer’s offer is accepted by the seller in part based upon a “tight” preapproval letter (where the loan commitment is subject only to satisfactory appraisal, clear title and title insurance, etc.)

After mutual acceptance and prior to receiving a loan commitment letter per NWMLS 22a, the buyer switches lenders.

Subsequently, the buyer is unable to obtain financing from the second lender and claims the financing contingency specified by NWMLS 22a has failed.

The original preapproval letter was material to the seller accepting the buyer’s offer.

And the winner is… the lawyers?

Closing (at least here in Washington State using NWMLS forms) is defined to have occurred when the transfer documents are recorded (the deed) with the county, and, sale proceeds are available for pickup (from the closing agent) by the seller. The seller doesn’t need to pick up the sale proceeds, they may have chosen to have them mailed or wired somewhere. But they could pick them up if they had so chosen.

Both are requisite for closing to have occured.

Closing agents will normally not record transfer documents unless they also possess all the monies needed to conclude the transaction (not just from the buyer – it’s possible a seller may need to bring funds to the closing table). They need what’s called “good funds”. That means the money is actually deposited into their trust account.

Sometimes buyers get caught because they don’t know good funds are required. Just having a check, even if it is a certified or registered check, isn’t the same thing as actually having the required funds in their trust account.

Imagine the situation where a transaction is to be closed on a Friday. Escrow is running behind so signing ends up scheduled for the same day as closing (fairly typical late in the week, especially towards the end of the month which is when most buyers want to close because they’ll pay less interim interest. Don’t even think about closing the last days of the year.)

The buyers intend to use the weekend to move in. They bring in their certified check. Unfortunately they won’t be closing until the following Monday at the earliest because the closing agent needs good funds and the transfer documents must also be recorded. Since the county isn’t open for recording over the weekend or legal holidays, the earliest recording day is Monday.

The buyer could have wired funds to the closing agent trust account the same day and then escrow (the closing agent) would have had good funds. This is the procedure to use when the buyer is using the sale proceeds from the sale of their existing home to purchase a new home (and you’re not doing a simultaneous closing using the same closing agent).

The snag you can run into here is that the closing agent usually doesn’t send the transfer documents to the county for recording until mid-day or later. So recording numbers (confirming the docs have been recorded) aren’t available until later in the afternoon. There’s usually a cut-off time for wiring funds (typically 2:30pm). If the closing agent doesn’t have recording numbers prior to the cut-off time, funds will not be wired (and deposited) until the next day.

Same thing happens with lenders. Many/most lenders want to review the final documents before they’ll transfer funds to the closing agent. They typically need up to a couple of days for review, especially if the lender is located on the other side of the country (in another time zone).

Both the buyers and the sellers could have signed closing documents anytime before closing… days or even weeks before the closing date.

So why don’t buyers and sellers just always sign early to prevent closing delays? …Lenders.

If the closing agent doesn’t have docs from the lender they can’t prepare their documents (including the closing statement – HUD-1).

Your mortgage originator typically isn’t privy to the lenders back room. They won’t have the power to speed things up late in the game. To the back room/underwriter your loan is just another file, and they’ll get to it when they finish those before it.

That said, carefully choosing your mortgage originator will lessen the chances of closing delays because they’ll do what needs to be done to get loan docs to escrow before they become critical.

So the key points to a smooth, on-time closing are:

1. Let your closing agent know you’ll need a day or two to review the closing statement (HUD-1).
2. Choose your mortgage originator carefully (if you’re the buyer). Let them know up front a closing delay due to the lender being late with loan docs will not be tolerated. If you’re really on top of things, you as the buyer will want a day or two to review loan docs before you’re asked to sign anything.
3. Start early checking with the buyer’s lender if you’re the seller’s agent. Let them know the closing date specified in the contract is inviolate. You’ll need loan docs at escrow early because you’ll not only need to review the HUD-1 prior to closing, but you’ll need to sign early (did you mention you may be leaving town 3 days before closing?).
4. If you need to deliver funds to escrow (both buyer and sellers may need to deliver funds), don’t wait until the last minute.

Sometimes as an agent there’s nothing you can do to prevent a closing delay. It’s out of your control. Especially if you’re the listing agent with nothing but the lenders reputation to use as leverage. But starting early goes a long way.

David Paul-

Good post and timely advice.

It’s been my experience (yeah, I too have to admit to being around in the 80’s) the situation where the buyer took a conventional first mortgage and the seller provided a second blindsided many a seller.

Sellers sometimes forget they have to be prepared to take out the first if the buyer defaults (on both mortgages) to protect their position. If/when a buyer defaults, most don’t just default “a little”.

Nevertheless, I’ve dusted off my copy of “Conventional Financing with Seller to Carry Second” addendum.

I’m not providing legal advice – check with your own attorney.

Why not negotiate the repair items you’re aware of as part of the initial purchase and sale agreement? Often times I’ve seen buyer’s agents wait until the inspection report comes back before negotiating repairs they know are needed.

That’s poor negotiating strategy in my opinion. Now the buyer (your client) is out the cost of the inspection and has emotionally ‘purchased’ the property.

One of the tenants I strive for is “no surprises”. Obviously that’s not 100% possible, but I want to know the seller’s position on replacing those broken window seals, putting on a new roof, and/or pumping the septic tank up-front — before we pay for a home inspection.

Leave the inspection contingency negotiation for those unforeseen problems and your buyer will be farther ahead.

She was looking for feedback… searching for a reason why her home hadn’t sold in the four months it had been on the market.  She had listed her home with a limited service agency, so she was doing the showing/previewing follow up herself.  I had to admire her diligence as her home had been on the market for some time.

I felt a little sorry for her.  She noted they had already reduced their price $20K.  I briefly thought about providing some insight and advice over and above feedback on the showing condition of her home but thought better of it.

Even though she was using a limited service real estate agent, there was still an agency relationship that needed to be respected.  It would have been improper of me to interfere.

Some good, some not so good. Helping new agents was part of what I did as assistant manager at my former company. I didn’t expect new agents to be experts at drafting contracts at first. When they needed to write a clause addressing a particular issue not contained within standard contract forms, they often tended to be vague and overly general.

But I didn’t expect the same from veteran agents.

The other day I received a purchase offer wherein the buyer wanted a new roof. As written it simply said “seller to install new roof”.

I don’t like surprises in real estate transactions so I rewrote the paragraph as follows: “Seller shall, at seller’s expense prior to Closing, install a 3 tab asphalt composition roof guaranteed for 25 years (same color) over the existing single layer roof.” (The seller was knowledgeable about roofing and knew they could go to three layers.)

Guess what… The buyer was expecting an architectural grade roof and a tear off of the existing roof. In this instance the seller declined given how far below the offer came in relative to the asking price.

But what if we had accepted the buyer’s offer with the new roof clause as written? Can you imagine the resulting ‘mess’ as the transaction proceeded?

Obviously, I too could have been more specific. Had there been time I could have obtained a bid, including specifications of the roof, and referenced it in the paperwork.