After breathing a sigh of relief that I was one of the lucky Georgians who suffered no damage, had clear and safe roads and did not lose electricity, I started responding to questions from agents and brokers about properties trying to close or not close hours after the storm passed their area but which had water damage.
I heard stories of sellers not wanting to tell the buyers there had been water intrusion, buyers who knew water had come in and wanted out of the contract regardless of whether the issue was resolved, and insurance companies who had already denied Georgia insurance claims while the storm was still within our border and was pounding the Carolinas. In fact, as I was writing this article on Sunday, I received yet another message from an agent for a closing that is set to close at noon on Monday and there is water. The buyer still wants to buy the home but they want the matter resolved.
Practical Advice in the Wake of Property Damage
My first suggestion is for everyone to take a deep breath and then look for practical solutions the buyer and seller will accept. If there is no Zone of Possible Agreement, we have to go to the contractual rights for the buyer and seller.
Georgia Association of REALTORS® Contract Provisions
So what does the contract say? There are a few portions of the GAR® contract that determine the rights and obligations for the buyer and seller when damage happens.
1. Almost everyone who contracted me seemed to believe that the Buyer has the right to delay the closing. Under the GAR® contract, there are unilateral rights to extend for title, lender and closing attorney delays. There is NO right to unilaterally extend due to the condition of the property.
2. The GAR® contract requires the Seller to deliver the property “in substantially the same condition . . . as of the Offer Date, except for changes made to the condition of Property pursuant to the written agreement of Buyer and Seller” and “Seller shall deliver Property clean and free of trash, debris and personal property of Seller not identified as remaining.” Additionally, “if the Property is destroyed or substantially destroyed” there are notice requirements and an opportunity for either the Buyer or Seller to terminate the contract.
Consider These Things If Trying to Close / Not Close in Georgia
What does all of this mean? Here are the things I think you need to consider or remember:
· Buyer and Seller can agree to extend. Again, there is no right to extend unilaterally but the Buyer and Seller can always agree to extend which will give both sides time to assess and consider. I do have a stip on my website that would give the Buyer that unilateral option regardless of the cause and takes into account that a delay may affect their rate lock. It would need to already be in the agreement before the need arises. It protects the buyer from acts of nature, seller’s failure to complete contractual repairs, and random damage to the Property.
· Buyer and Seller need to focus on the future not the past. If the buyer wants to buy and the seller wants to sell, odds are they can come up with some plan to make that happen. The real estate agents need to help clients focus on choices for the future and looking at options. The agent should be part of the solution since they have the knowledge and empathy but not the emotional tie to the transaction that the buyer and seller have.
· There are multiple possible solutions. The seller can make the repair. The seller can give a closing costs credit. The buyer or the seller can be the one who picks the repair person. The only thing to remember is to make sure the lender will agree to whatever resolution the buyer and seller want.
· Contracts do not have magical powers. If the buyer and seller cannot come to an agreement on a plan, there is little the contract can do to help that. Contracts are not magic pixie dust that can just make all of the bad stuff go away. Contracts exist to balance the rights and obligations of the parties when things go wrong.
· Destruction is in the eye of the beholder. There is no definition in the contract for what destroyed or substantially destroyed means. There is no dollar or percentage amount of destruction that works for all properties at all price points. It would be something that is more than “some damage” which is why the word “destroyed” replaced “damaged” in our contracts several years ago.
· Exercising your legal rights can be expensive. If there is an argument as to whether the property has been substantially destroyed or an argument as to whether the property is in the required condition after the water intrusion has been eliminated and repaired, the parties need to understand where that leads. The buyer is claiming a right to terminate or that the seller has defaulted by not delivering the property in the required condition. The seller is claiming that they met the obligations of the contract. The Holder of Earnest Money cannot make a “reasonable interpretation” of the agreement in almost all of these cases. The question is about the physical condition of the property which the Holder cannot judge. They never saw it before the damage and probably will not see it after. Those are the types of judgments made by a fact-finder – a judge or a jury after the buyer and seller have hired attorneys and experts. That is an expensive proposition. They need to rethink putting their heads together for a mutually agreeable or mutually disagreeable resolution before they go down that road.
Seller Does Not Want to Tell the Buyer About the Water Intrusion
The last question is whether the Seller needs to tell the buyer the water intrusion happened. This is dependent on a number of factors:
· The contract may require disclosure. Did the seller give the buyer a GAR® Seller Property Disclosure Statement? If so, they are required to update the disclosure when something changes. Water is one of the few items in the disclosure that is asked in both the present and past tense. Yesterday’s water is tomorrow’s mold.
· The law may require disclosure. Regardless of whether ANY property disclosure was given or how the property was sold, including as-is, the seller must disclose any latent defects under GA law. If the repair of the water intrusion was only to repaint the area so that no one can see that it happened, I think there is a very good argument that this is a latent defect. The fact that the seller painted over it also proves they knew about the issue. If the defect has been eliminated and repaired, the technical legal answer is that the seller is not required to disclose.
· Disclosure would be a best practice. Sellers should probably (and I would if I were the seller) disclose even if they are not required in the contract or under the law. Repair is made by the seller in good faith can fail and the seller will certainly have potential legal liability. I would want my buyer to check out the repair, satisfy themselves, and go after the repair company if they have issues or complaints in the future.
The Storm is Not Over
For all those able to move forward with existing closings, please remember than even a week after the storm, there are still many people who are no nowhere near recovered. Many of them are REALTOR® who are dealing with their own home and business property damage while trying to help their clients in sales and leases who are also affected.
Please donate to Realtors Relief Foundation or text HELENERELIEF24 to 71777.
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