While the first time home buyers are out in force looking to purchase a home, the reality is that a good part of the elusive purchaser pool is made up of homeowners looking to trade up to a new home. Which means, for the most part, they need to sell their current residence to be able to purchase a new residence. Contracts often contain certain contingencies which, if not met, allow the parties to unilaterally cancel a contract and the buyer recoup their down payment monies. One such contingency is conditioning contract performance on the sale of the Purchaser’s current residence.
In the seller’s boom market in years past, any prospective purchaser who would dare ask for this contingency would never even make it to the binder stage let alone contract. Contracts often crossed my desk that were missing mortgage contingencies, even though Purchaser needed a mortgage to complete the transaction – competition was so fierce that these buyers would agree to almost anything to cinch the deal. But that market has come and gone – we are in the midst of a buyer’s market and now the purchaser has some leverage.
Still, most real estate attorneys will balk on including a Sale of a Purchaser’s Current Residence (SPCR) Contingency in their Contract. The rationale is that the Seller has to take their home off the market and risk losing the opportunity to snag a qualified Purchaser who doesn’t need such a contingency. This is a very sound rationale and definitely makes sense in the Seller’s market. Here, however, there is some bargaining room as “qualified” purchasers aren’t lining up in droves so that the Seller’s risk is lessened.
There are a few strategies that can be employed on a Purchaser’s behalf in this type of situation. If Purchaser is obtaining a mortgage and needs the funds from the sale of the current residence (or the removal of the debt obligation), this will often be a condition in the mortgage commitment. So, even if seller’s attorney won’t include an actual SPCR Contingency, the mortgage contingency clause will therefore indirectly include the SPCR contingency. I am not overly fond of this strategy because of its ambiguity. Ambiguity creates issues of fact which can lead to uncertainty and litigation. Also, please note, attorneys have caught onto this trick and include language that specifically states the contract is not contingent upon the sale of the purchaser’s home and that a mortgage commitment will be considered firm and unconditional (and therefore satisfy the requirements of mortgage contingency clause which causes its removal) even if it has a condition requiring the sale of Purchaser’s real property or the payoff of certain debts and liens.
I have a unique solution to this very problem and it is usually well received by other real estate attorneys. Modify the SPCR Contingency to include an escape clause for the seller. Allow the Seller to continue to market the property for the time the contingency is in effect. If a prospective buyer makes a bona fide offer, Seller gives notice to the Contract Purchaser of the offer and allows Contract Purchaser to either remove the SPCR contingency and continue with the Contract or cancel the Contract and receive a refund of the down payment monies. With this modification, Purchaser does not have to worry about jeopardizing their down payment and Seller does not have to take their house off the market and lose out on potential qualified buyers.
The modification of the Sale of a Purchaser’s Current Residence Contingency is a way to balance and satisfy the needs of both parties while removing an almost impossible roadblock to a potentially successful real estate transaction. Careful examination of the terms of the proposed contract and wording of the SPCR Contingency with modification language is key and should be left to the expertise of a real estate attorney.
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