What happens when title issues arise in the middle of a transaction? How can real estate investors keep the process moving forward? What are your legal responsibilities if you encounter these issues? Perhaps even more importantly, however, is learning when to walk away if the opportunity presents itself. Regardless of the situation, it is important to keep your real estate closings on track if they benefit your bottom line.
This can be a difficult time of year for real estate closings. Beyond the usual issues, the holidays make it increasingly difficult to close a deal. The industry is backed up, people are busy, files are endlessly shuffled to new desks and emotions are running high.
One of the biggest threats to real estate closings, which has been growing over the last couple of years, are title issues. When there are clouds on title, breaks in the chain of title and other problems; cash buyers often aren’t going to want to close and finalize a deal. Those utilizing mortgage financing probably have no choice, due to their inability to obtain title insurance and satisfy lender conditions.
In addition to chain of title issues; home buyers, sellers and real estate investors face several other challenges. Additional challenges may include: code violations, permitting problems, fines, mechanic’s liens, and multiple owners that have gone MIA.
As with anything that causes a snag in closings, these issues frequently aren’t flagged or brought to the attention of those that can actually fix them until it is too late.
In some cases, these obstacles are relatively straightforward to fix. They just take time and preparation. In other scenarios, back and forth negotiations are required. In situations where missing title holders need to be tracked down and sometimes even convinced to sign off on the transaction, it will require extra effort to salvage.
Recently, title issues have led to delays and wind up seeing contracts pass their scheduled closing dates or ‘expire.’ This is a nightmare scenario for wholesalers and real estate agents who rely on deals to actually close in order to get paid.
When this occurs, who can cancel the deal? What happens to any money already in escrow? What are the legal obligations of real estate investors brokering deals?
There are certainly many complex legal opinions on this, and it is always wise to seek a qualified real estate attorney’s help. However, from a common sense point of view, if the contract appears to have technically expired because the seller was unable to deliver clear or marketable title, both sides should be freed from the contract.
Of course, neither side is likely to be too happy about this scenario. However, the buyer ought to get their money back and the seller may still wind up on the hook for paying real estate agent commissions.
If both sides agree the contract can be extended for as long as desired, it is normally in everyone’s best interest. It sure beats starting from scratch and hoping the next buyer or seller will work out better. For the agent or wholesaler, this also prevents being cut out of the deal.
In fact, while the legal liability ‘may’ be limited for real estate wholesalers, there is certainly some ethical obligation to see all parties are taken care of . This will definitely work to preserve your reputation and might buy you some slack in cases where sellers could sue for performance negligence.