Special situations may exist which should be dealt with contractually to best protect your interests. Often, the purchaser must sell his present home before proceeding with the new purchase. Purchasers are often advised to proceed without an express contingency because “the mortgage contingency will protect you”, i.e., the mortgage commitment may be conditional on the sale of your present home. The courts in upstate New York have held since 1986, however, that this is no real protection. Unless there is an express contingency concerning the sale of your present home, you may be held liable for your failure to proceed with the purchase because of your inability to close on the sale of your present home. As damages can be quite high, including the costs of litigation, you are always better off to consider either an express contingency, i.e., “This contract is contingent upon the closing of the sale of purchasers’ home on or before a certain date”, or a contingency which is less offensive to the seller, i.e., a “48-hour contingency”.
The typical 48-hour contingency makes the transaction contingent upon the purchasers entering into a contract for sale of their present home with all contingencies in that contract satisfied in writing by a certain date. In the meantime, the subject property stays on the market open to secondary offers. If another offer is accepted, following approval by both attorneys, notice is given to the primary buyer who then has 48 hours to either remove the contingency concerning the sale of his house and proceed or to declare the contract void and receive the return of his or her deposit. In the latter event, the seller is free to proceed with the secondary contract.
Often, in a 48-hour contingency contract, the seller will agree to allow the delay of a formal loan application by a pre-qualified purchaser until the removal of the contingency, but will require the early completion of the various inspections and tests.
Other special considerations relate to the timing of the closing. One issue is the rate lock, or limited period of time lenders agree to loan mortgage money at a specified rate of interest. While most lenders will offer a 60-day rate lock, beginning upon completion of the formal application, there are enough variations among lenders that you should inquire specifically about this issue. A problem arises, obviously, if the closing date is later than the rate lock expiration date. Sometimes a rate lock can be extended but there may be extra bank fees involved to do so. Occasionally, the seller will agree to close prior to the contract date to accommodate an expiring rate lock; but it may be agreed that they will stay in the house after closing for a specified period of time to give them a chance to close on their own purchase.
Whether to accommodate an expiring rate lock or simply to give a seller more time to move out, a post-closing possession should be negotiated early in the transaction and discussed with the attorneys so that a proper post-closing possession agreement may be prepared. If the purpose is to accommodate the purchaser, then rental payments by the seller may not be required. If the post-closing possession is requested by the seller, however, it is customary for the seller to reimburse the purchaser for his p.i.t.i. (Principal, interest, taxes and insurance payments) as well as to keep the utilities, etc., in the seller’s name until possession is given.
Conversely, there may arise a situation where the parties agree that the purchaser may occupy the home in advance of the closing. This generally occurs only after the buyer has a written mortgage commitment and all other contingencies are formally satisfied and some emergency exists which makes it important to permit the arrangement (i.e. the moving van is arriving tomorrow at 7:00 a.m.). Again, if you expect this kind of situation, discuss it as soon as possible with your attorney so that a proper written agreement may be prepared to adequately protect the interests of both sides.
Other special considerations may relate to storage of buyers’ furniture in the residence prior to closing; repairs required by the lender but not revealed by the home inspection; accuracy of lender’s good faith estimates of closing costs; unusual conditions in the lenders’ commitment letter; absence of one spouse at time of closing; buyer-broker considerations; covenants and restrictions affecting your title; homeowner’s association dues in planned-unit developments; new construction issues, and many more. Remember to discuss any special concerns you have with your attorney as early in the transaction as possible to help ensure proper representation.