Experienced real estate attorneys catch small details that could prolong or derail a sale, leaving your client’s money on the line. In today’s blog post, I demonstrate how I, as a litigator and transactional attorney, protect your clients.
Knowledge of Mortgage Contingencies
A prime example of going above and beyond as a litigator is a thorough knowledge of mortgage contingencies. This clause in the real estate contract provides a set amount of time for buyers to obtain a mortgage. If the mortgage doesn’t work out, the contingency lets buyers walk away with earnest money intact.
There are three types of purchase options obligations for buyers listed in the sale contract:
1. Mortgage
2. Cash
3. Cash with the right to get a mortgage
In a cash deal with the right to a mortgage, the rules of a mortgage contingency don’t apply the same way. Buyers can’t refuse to close on the sale if a mortgage isn’t approved. Similarly, if the buyer obtains the mortgage, the seller is obligated to cooperate with the sale.
Client Example
Recently, one of my clients faced a potential mortgage renege. The buyer chose a cash with the right to get a mortgage option. In these cases, sellers are required to cooperate during the appraisal and inspection period. The buyers must also follow through with the sale if the mortgage is granted.
In this case, I worked with a client with impeccable credit and banking. The challenge occurred when their banker went out of town on vacation at the time of loan completion. Suddenly they were stuck with the risk of not receiving their mortgage.
We were tasked with protecting the buyer’s earnest money from being forfeited to the seller under the mortgage obligation terms. This was a million-dollar home, meaning stakes were quite high if earnest money went hard. This might have turned the case into something of a litigation issue. The costs for both sides were high, even if the contract provided that the prevailing party was entitled to attorneys’ fees, since the property might remain off of the market while the issue of the earnest money was resolved.
I use a proactive approach, keeping my clients educated on the risks involved in mortgage options and what potential litigation could follow. In the case of a $1.5-million home, for example, you could have $30,000 or more in earnest money on the line. This leaves buyers with risks such as:
- Losing the earnest money
- Losing the house
- Impacted credit because of a $1.5-million credit pull
But, I also know when it’s time to go on the offensive. This sometimes means finding alternative lenders, borrowing from the buyer’s own business, family, friends, or finding another solution to get the money they need.
Nuance is Everything
In the end, the client got the house. We worked with sellers to maintain an accommodating relationship. This is one of the finer nuances of being a transactional attorney—knowing the market, the process, and the fine print in each house sale.
Sellers are ultimately looking to sell their homes for top dollar. If a buyer finds a way to follow through and is honest and transparent that the problems they are having are beyond their control, but not beyond their ability to close, there’s a good chance the seller will accommodate them. Otherwise, sellers are left relisting the property and restarting the sales cycle from the beginning.
