In the face of a recovering real estate market, a recent trend gaining steam is that of homebuyers making “all cash” offers. Sellers are often all too eager to jump at these offers, even when higher bids are on the table, relying instead on the purchaser’s assurances of a quick closing – typically thirty days in this scenario. While these buyers usually do have sufficient assets to purchase the property with cash – and do, in many cases, initially intend to close with all-cash in the agreed-to time frame – the reality is that once both parties sign the contract, more and more, “all cash” buyers get enticed by today’s ultra-low borrowing rates, shift course without the seller’s consent and apply for financing. As you might expect, this often develops into a conflict between the buyer and seller: since banks generally won’t process loan applications within thirty days, these applications can force delay of the closing, in some cases, well beyond the time frame stipulated in the Contract for Sale. This is precisely the result the seller hopes to avoid by entering into a contract with a buyer who agrees to move forward without a mortgage contingency clause (a provision in the contract that allows the buyer to cancel the deal without penalty if a mortgage has not been obtained by a certain date). In most cases, the buyer still wants the property and is prepared to go “all cash” but holds-out for the financing and strings the deal along while everyone else is asked to wait.

law-room-issue1While a seller faced with such delay can attempt to force a closing by sending the buyer a “time is of the essence” letter, it is very likely the closing will be delayed…that is, if the deal can be salvaged and stay on-track. Furthermore, upon receiving the letter, if the buyer does not immediately consent to close in accordance with the original terms – or any new terms set forth – the seller can expect to incur additional legal expenses and ultimately may find themselves in litigation.

In order to avoid this conflict and adhere to the closing parameters agreed-to by the purchaser and seller at the time the deal was struck, we believe it best to include provisions in all Contracts of Sale specifying timelines by which financing can be secured, including those cases where  an “all cash” deal has been offered. These timelines cover date-certain issues such as the buyer’s deadline for any finance application submissions, the actual closing date itself, and the last date for a seller to cancel the contract (and attendant penalties for the buyer’s non-compliance). These considerations are included to help ensure that a closing actually occurs at the time contemplated when the deal was negotiated. In the end, while it may appear these provisions are included to protect only the seller, they, in fact, protect both parties and greatly reduce the likelihood of litigation.


The authors maintain separate practices and collaborate from time-to-time representing sellers and homebuyers in real estate transactions. You may contact Barbara Albom at balbom@albomlaw.com and Nicholas Ferrar at njferrar@verizon.net

  •  
  •  
  •  
  •  
  •  
  •