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Category: Agreement of Purchase or Sale

  • My seller won’t close.  Now What?

    My seller won’t close. Now What?

    We've all heard of buyer's remorse. But what if a seller won't close?

    Finally. You signed an agreement last night to buy your dream home.  You’re so excited that you can’t sleep.  You think about all those other homes you saw and lost out on.  All the bidding wars you’ve lost, and the emotional rollercoaster you went through.

    At last, your dream home is within reach.  You drop off your deposit the next day and start making a massive “to-do” list to prepare for your move.

    Suddenly a call comes in from your lawyer.  Your seller refuses to close.  As you try to grasp what just happened and wait for someone to pinch you so you can wake up from this nightmare, reality sinks in.   

    Although most real estate transactions do close, there’s always a small percentage that may fall through.  More common are situations where the buyer can’t or won’t close.  Although this may happen for various reasons, in most cases, it is more likely that the buyer experiences remorse on their purchase and tries to back out of the deal.

    But what if a seller won’t close or experiences seller’s remorse?  This situation is becoming more common as the home prices continue to appreciate and a seller starts pondering if they’ve left too much money on “the table”.

    For example, John agreed to sell his house to Martha for $500K.  Both parties signed a binding agreement to close the transaction within 60 days.  Two weeks later, John’s neighbour, who has a very similar property puts their house on the market and ends up selling for $600K.   John starts feeling that he has missed out on the opportunity to get an additional $100K for his home.  This is commonly called seller’s remorse.   Seller’s remorse can be for a variety of other reasons such as sentimental value, or others.  After all, selling your home is a highly emotional experience.

    So parties can have remorse.  What does it mean for the transaction?

    A firm agreement of purchase and sale is a binding contract. When a seller won’t close or does not complete an agreement without cause the seller can be responsible for making the buyer “whole”. 

    This means that the buyer is entitled to be put in the same position as they would have been had the seller completed the transaction as promised and scheduled.

    So, continuing with our example above, if John ends up backing out of the agreement to sell his house for $500K and Martha now has to buy another home and paid $600K due to the appreciating market conditions, John, as the seller may be liable to his Martha for the difference between the original contract price and the price that Martha will ultimately buy a comparable the home for, plus any related costs incurred by the buyer, such as legal, carrying, moving or accommodation costs etc.

    As a buyer, your damages must be reasonable and foreseeable and you must do your best to mitigate the amount of damages suffered (so staying at Four Seasons while you're shopping for a new home, is not your best option). 

    As soon as you sense the seller won't close, speak to your lawyer and Realtor to discuss your options as there may still be a way to get the deal done.

    Since every situation is different, you should, first-and-foremost, consult a lawyer to seek proper legal advice and understand your rights and remedies. It's best to do so at the earliest sign of issues. Your lawyer and Realtor can also help establish a line of communications with the seller, while removing the emotional aspects out of the equation. In many situations expensive litigation can be avoided by understanding the interests of both sides and figuring out a way to move forward.

    If all sides are cooperating, then there is a good chance you might be able to reach a compromise solving the issue quickly and getting you into your new home.

    But I Put Down a Deposit, What Happens To it?

    If a seller backs out and decides to breach the agreement, you are generally entitled to a return of your deposit upon either signing a mutual release or a court order. 

    A mutual release is a document used in real estate when a deal falls through.  It releases both parties from the Agreement of Purchase and Sale. The buyer gets their deposit back and the seller is free to sell their house to someone else or hang onto it.  It also means that both the buyer and seller release each other from any future liabilities or damages.

    As a buyer, while it may be tempting to just get you deposit back and move on, it is wise to seek legal advice prior to signing a release to understand your options.

    If you have any further questions, rest assured that the Deeded team is here to support you in any way we can.

    Important Note: This article is not Legal Advice.  No one should act, or refrain from acting, based solely upon the materials provided on this website, any hypertext links or other general information without first seeking appropriate legal or other professional advice.

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  • What is a mutual release?

    What is a mutual release?

    Congratulations.  You signed on the dotted line last night and you’re so excited to become a homeowner. 

    In today’s dynamic real estate market, we all know it was quite the emotional rollercoaster to get to this point and while you should be excited, today’s topic is two words that no buyer or seller hope to intentionally encounter:  mutual release.

    If you’re reading this blog, odds are you might be considering signing or asking for a mutual release, so we’ll cut right to the chase.

    What is a mutual release?

    A mutual release is a document designed to be signed by both the buyers and sellers to cancel an agreement of purchase and sale.  When executed, this document cancels the agreement and “releases” all parties from any future liabilities or claims.

    The most important point to underscore is that a mutual release requires the agreement of both parties (buyer and seller) and cannot be executed without both parties agreeing to the terms.

    When is a mutual release used in Real Estate?

    A mutual release is used when both parties wish to nullify an agreement of purchase and sale.  The two most common scenarios where a mutual release may be used are:

    Conditional agreement - When a condition is not met

    Buyers and sellers may set various conditions in their agreement of purchase and sale such as financing or inspection.  If these conditions are not satisfied within the particular time frame set in the agreement, a mutual release signed by both buyers and sellers enables both parties to essentially “walk away” from the deal. 

    Despite the name, in almost all cases it is one side who wants to be released from the deal and who must convince the other side to let them out.

    In a conditional deal that has fallen through, the seller often has little choice but to sign a Mutual Release.  Given that conditions have short time frames, there may be an inconvenience to the seller, but it is rare to see a market shift where the seller can experience a significant loss if they needed to re-list and sell their property again. 

    Nonetheless, relisting the property and selling to someone else is an onerous task and most sellers may take some time to get over the fact that the deal is no longer and that they must move on.

    On a firm agreement

    In a today’s highly competitive seller’s market seeing conditions on an agreement of purchase and sale has become an exception rather than the norm, leaving buyers often making firm offers (without any conditions attached).

    What if you gave or a “firm offer” and it got accepted by the sellers?  Can a mutual release still be possible?

    When a firm deal encounters problems, it is most often on the buyer’s side, although it is no longer uncommon to see sellers who are having “seller’s remorse”. 

    Whether changing their mind or a change in circumstances that makes the purchase not desirable or possible, when a buyer wants out of a firm deal it can be quite challenging.

    In this case, the buyer must convince the seller to agree to release them from the deal.  If you put yourself in the seller’s shoes for a moment, that is not an easy decision as they may have bought another home or made other plans whereas relying on their current home closing on a specific date.   If a seller refuses to consider a mutual release, you may still be bound by the agreement unless you can negotiate some form of compensation that may get them agree.

    This is where the discussion may focus on the alternatives, which could include the buyer walking away without a mutual release and the potential legal consequences as a result.

    This is also a time where having the right professionals working for you becomes critical. Your real estate agent and lawyer can establish a line of communications between the buyer and seller to better understand their intentions and remove the emotional aspects from the situation. 

    Whether you’re the buyer or seller, it is important to speak with your lawyer to seek proper legal advice to understand your options prior to signing a mutual release.

    If you have any further questions, The Deeded team is here to support you in any way we can.

    Important Note: This article is not Legal Advice.  No one should act, or refrain from acting, based solely upon the materials provided on this website, any hypertext links or other general information without first seeking appropriate legal or other professional advice.

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  • Practical Tips on Drafting Title Insurance Clauses in Alberta

    Practical Tips on Drafting Title Insurance Clauses in Alberta

    When it comes to closing a home in Alberta, on occasion, the seller may offer a credit for the costs to the buyer to purchase a title insurance policy in lieu of the seller providing an up-to-date real property report (RPR). When considering the prospect of drafting title insurance clauses, into your agreement of purchase and sale make sure you understand exactly what you're agreeing to.

    What is Title Insurance

    Title insurance is available for a low premium that is paid only once at the time of the purchase. Title insurance provides coverage for losses arising from survey/RPR related matters including:

    • Forced removal by a governmental authority or an affected neighbour/easement holder of all or part of the existing structures due to encroachments onto adjoining land or onto an easement; and

    • The land being unmarketable, which allows another person to refuse to perform a contract to purchase, lease or make a mortgage loan due to adverse matters that would have been disclosed by an up-to-date survey/RPR.

    Limitations of Title Insurance

    Title insurance does not cover known defects at the time of the purchase. This would include deficiencies disclosed in an RPR or home inspection report obtained prior to closing. However, some title insurers may provide coverage for known issues subject to underwriting approval. If you wish to use title insurance to deal with known issues, the availability and extent of coverage must be confirmed with the insurer prior to offering a title insurance credit to the buyer to compensate for the known issue.

    Do be cautious in drafting title insurance clauses in the purchase agreement. Avoid vague clauses such as:

    • Buyer accepts the RPR as-is with title insurance

    • Title insurance in lieu of RPR

    • Clauses such as these do not address
      • a) who pays for the title insurance; or
      • b) what happens if the RPR shows a known defect which a title insurer will not cover.

    At Deeded, we would be happy to help you draft title insurance clauses and would welcome the opportunity to collaborate with you on the purchase agreement to ensure the best interests of your client.

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