Part 1 – Closing day headaches: What to do when things go wrong?
While most real estate transactions close on time without any issues, there are those rare instances when things pop up on or before the closing date that can be quite stressful to both homebuyers and to sellers.
In part one of this three part series, we will identify a common instance and how the situation can play out.
Fact Situation 1 - A title problem is discovered prior to closing
Assuming that the Buyer's lawyer has completed a title search of the property by the date specified in the agreement for this to be completed ("the Requisition Date") and a title problem has been identified, the Buyer's lawyer will "requisition" the Seller's lawyer to remedy the defect prior to closing. There are too many examples of such title defects to mention here. Suffice to say that it is the responsibility of the Buyers lawyer to identify such defects and to requisition their repair in a timely fashion.
In most cases the problem can be resolved without much difficulty, or an adequate answer can be provided to the Buyer's lawyer, such that the closing can proceed. In some cases, the problem can be resolved by the Seller agreeing to pay the cost of a Title Insurance policy where such an insurer is agreeable to insuring the risk. Sometimes the transaction must be extended due to the time constraints involved. In other instances, the parties may agree to a reduction in the purchase price or some other mutually agreeable solution, although if the problem goes to what is known as "the root of title" the Buyers' mortgage company must be made aware of the problem and agree to the suggested solution.
If the problem cannot be easily remedied, and the Seller is "unable or unwilling" to satisfy the requisition, the standard OREA Agreement of Purchase and Sale provides that the agreement is then automatically terminated and the Buyer's deposit refunded without interest. This result can be less than satisfactory to a Buyer who was anticipating moving into the property within a week of learning of the problem! This scenario would most often play out when there is a quick closing.
One solution to this would be to amend the standard agreement to avoid this result although from a practical standpoint this is not always possible or easy to do.
It is therefore critically important that the Buyers lawyer strictly adhere to the timelines required by the agreement to conduct the title search so that any such defects may be discovered well in advance of the closing date. It is also important for realtors to be mindful of the "Requisition Date" when negotiating the agreement and any amendments to it so as not to prejudice either party.