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In this podcast, we discuss paragraphs 16 through 26 of the promulgated commercial contract for properties with improvements (buildings, not just vacant land). We discuss when the clock starts for duties, disclosure, (or not), condemnation and acts of God, and also the drop dead date (the contract, not people). This makes the contract sound biblical.
Previous podcast episodes have discussed up through paragraph 15. It would be a good idea for you to listen to those beginning episodes.
What is the latest at the Poodle Ranch?
I have been picking pecans and raking leaves to find them. Got a bushel
Paragraph 16 – What happens if the subject property is damaged before closing
If the seller does not restore the property
• The earnest money and option feasibility fee are returned to the buyer
• Extend closing for 15 daYS
• Buyer can take the property in current condition and get any insurance proceeds and get a credit from seller for the insurance deductible amount.
IF the property is condemned by a jurisdiction, buyer can terminate and get refund of EM and option feasibility fee
Or defend the condemnation
Para 17 – IF there is a lawsuit the loser pays the attorney fees
Para 18 – What happens to the earnest money if the deal does not happen.
The party that defaulted or was in breach should release the earnest money to the other party. If they do not, then the parties can send written notice to other party asking the okay to release to the party that asked to receive the money.
If the title company does not get written permission to release the EM, then a party can file lawsuit to receive damages, EM, attorney fees and cost of the lawsuit.
It is easier to release the EM.
Para 18 Also let you check the box for buyer and / or seller to do a 1031 tax deferred exchange. We will discuss this tax code in an upcoming podcast.
Para 19 allows seller to agree to provide a Property Condition Statement (similar to a residential Seller Disclosure Statement, which requires of every single family home.
Or check the box saying that the seller is not aware of bad property conditions.
There are two ways to view this issue. It can be argued that if seller knows of significant problems with the property, the seller should disclose to avoid a lawsuit in the future.
The other view is that seller should not check either box and make not statement, and encourage buyer to hire a licensed building inspector.
I am inclined to disclose important significant problems with the property that seller is aware. I do not need legal challenges.
Para 20 says that buyer and or seller can receive notices by their email address. I am inclined not to agree to notice by email because it can get lost in cyber space.
Para 21 say parties agree to mediation to solve a dispute before further litigation.
Para 22 says the contract is binding and specifies the addenda which are to be included with the contract. Do not forget to include all the addenda. It may bite you later.
Para 23 says time is of essence ?
Para 24 is important because it sets the clock to start and you need to know when you must perform certain duties.
The effective date is the day that the title company receives the contract. Get a written receipt from the title company with date stamped.
Para 25 – The residential contract effective starting date is the day that both buyer and seller sign the contract, and is not related to the title company.
Para 25 also discussed flood districts, sewer areas, and flood areas and lead based paint, mold remediation certificates
Para 26 includes the drop dead date which is the deadline for signatures of both buyer and seller.