BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
Seller Refuses to Leave at COE
Q: I am a buyer’s agent on a short sale. The contract calls for the property to be delivered vacant at the close of escrow. Now, as we are approaching the date for COE, the listing agent tells me that the seller is refusing to leave, citing the fact that he has no place to go. What can my buyer do about that?
A: This is an all too frequent problem with distressed properties, and occurs occasionally in other transactions as well when a seller’s plans to move change at the end.
The first step is to try to reason with the seller, pointing out that they will be in breach of the purchase agreement and could be liable for damages to the buyer who may incur attorney fees, costs to store furniture and temporary housing costs.
In addition, if COE is delayed and, as a result, buyer’s rate lock expires, the buyer could have substantial damages by having to pay a higher interest rate on the buyer’s new loan. These damages could escalate into the thousands of dollars very quickly.
The seller may not care now, when they have little or no money, but a money judgment against them is good for many years and can be collected on later when the seller is back on their feet financially.
If those attempts have failed and it is clear that the seller intends to stay, the listing agent could point out that the seller’s short sale lender in virtually all cases prohibits any possession by seller after COE.
The seller’s conduct could cause the lender to cancel the short sale and/or hold seller liable for the amount they lost on the short sale. Seller should be advised by the listing agent to discuss this with their legal advisor.
The buyer, faced with a seller who is holding over, has essentially three options:
1. Cancel the Contract: The possession of the property is an integral part of the purchase agreement consideration and the holding over by the seller constitutes a breach of the contract, which would entitle the buyer to cancel.
2. Close Escrow and Sue for Damages: This should only be attempted by the buyer after they have been advised in writing to discuss this option with their attorney. The attorney for the buyer may recommend an Unlawful Detainer eviction, or an Ejectment action designed to remove trespassers, and it is likely that the seller is at that point. While Ejectment can be faster, either will cost money and take time.
3. Refuse to Close until Seller is Out: This can have the effect of (1) putting pressure on the seller to leave if they want the benefits of a short sale as opposed to a foreclosure; (2) relief from ongoing liability on a recourse note and (3) a lesser effect on the credit score. However, for a buyer, a delay may not work if the seller’s lender has imposed a time limit on closing, or if the buyer’s lender’s rate lock is expiring.
PRACTICE TIP: As soon as you are aware that there may be a problem with possession at COE, advise your buyer to discuss his/her options with their attorney so as to decide on the best course of action.
DO NOT FORWARD TO CLIENTS. This Weekly Practice Tip is for the exclusive use of clients of Broker Risk Management and their agents. It may not be reproduced or distributed without the express written consent of Broker Risk Management. The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.
© Copyright Broker Risk Management 2011 12/30/11