Does Missed Closing Date = Voided Contract?

[Nathan Burnett]

Hey All! Would like to get your input regarding the validity of a purchase contract..

Scenario: Closing date has come and gone, because the buyer's lender took longer to process the loan than expected. The buyer and seller have RE agents representing them. Per contract, all extensions/addendum etc. etc. must be in writing and signed off on by both parties. Verbally, everyone has been under the impression that we would extend closing for the sake of getting the deal done. However, there was never a written or signed extension to contract presented by the RE agents for signature. There is no earnest money in the deal.

Question: Does the fact that closing did not occur (and has not yet occurred) on or before closing date mean that the original contract is now null and void/expired, etc?

The contract does not explicitly state that "this contract will be deemed void if closing does not occur by closing date." It actually doesn't explicitly state anything about what happens if the closing date passes. 

Any one have any experience with situations like this?

Thanks!

[Tom Gimer]

It's more complicated than that. 

First question is do the parties want to close? If the answer is YES, they can do so with or without an extension.  Happens all the time.

If the answer is NO (i.e., at least one of them wants the deal to stay dead), then it just got much easier for that party to wash his/her hands of this.

[Nathan Burnett]

@Tom Gimer If No, what might be the appropriate action to take, do or say? Thanks. 

[Sam Shueh]

NO EMD= No holding back. The buyer can walk away holding up the sale to other potential buyers.

It is just a written purchase agreement with no plan or action in place. 

[Jay Hinrichs]

Voidable  ..   in this instance your what we call out of contract.  @Sam Shueh  to my utter surprise there are states in the mid west that EM is not required to go into contract Like it is on most west coast states.

But if the OP is the seller and wants out.. just move on.. your out of contract.

[Seth Ferguson]

@Nathan Burnett,

If the answer is no, the vendor can sue the purchaser for costs incurred, and if they resell at a lower price, they can also go after the difference. The purchaser breached the contract by not closing.

Like @Tom Gimer said, typically it all works out as long as both parties are willing to close. These speed bumps come up sometimes.

[Mike McKinzie]

I do not know if the law has changed or not, but back in my "hey day", the 80s and 90s, on the rare occasion, the deal did automatically cancel if it went past the scheduled closing date.  In most cases, the buyer and the seller want to close, BUT, if either party gets "upset" for any reason over the transaction, the deal DOES cancel if it isn't closed.  We even took it to our attorney at the time, and he told us that the contract terms were NOT met, so the contract is Null and Void.  IThe best practice is to keep all parties informed as to the progress.  If it is going to go over, it is usually knowsna few days before the scheduled close date and it can be re-negotiated then.

[Tom Gimer]

Originally posted by @Nathan Burnett:

@Tom Gimer If No, what might be the appropriate action to take, do or say? Thanks. 

The contract should have a provision regarding "notices" ... follow it. Pursuant to section X of the PSA the buyer failed to close by Y date, the contract is now void, and the parties have no further responsibility to each other.

Of course if you are the defaulting purchaser, my answer would be much different!

[Russell Gronsky]

@Nathan Burnett, as others have said, it sounds like you are out of contract and either party can walk away from the deal. And with no EMD being held by escrow, this is an even easier case as the two parties will not fight over who gets the EMD and who is in breach of contract.

If both parties still want to do the deal, nothing is saying they can't. Both can complete the transaction, as originally agreed.

As a side note, let this be a lesson to you: everything, including contract termination scenarios/triggers are spelled out in writing, in the original contract.

To add one more layer of protection, if one or more parties want to walk away from the deal, all parties should sign a contract release form. It basically puts into writing that all parties agree to terminate the contract and walk away from the deal.

[Scott Anderson]

@Nathan Burnett

In AZ there is a cure period. After that it’s voidable.

[Nathan Burnett]

As stated in the original post: The contract does not explicitly state that "this contract will be deemed void if closing does not occur by closing date." It actually doesn't explicitly state anything about what happens if the closing date passes.

After speaking to a local attorney, he stated that even after an “expired” closing date, if there is intent to continue, the contract still applies even if the contract requires both parties to sign an addendum in writing, which this contract did. The reason for that, he states, is because if you’re taken to court, a judge would most likely rule on the fact that you continued to pursue a purchase agreement after the expiration date.

Seth is correct in stating that the seller could sue the buyer for the cost they incurred, agent fees, and if they sell for lower, then the buyer could have to cover the difference if awarded in court. According to the attorney, with little to no EMD in the deal, the buyer, if sued, could get away with little fees incurred to go through the process/court. During the time of litigation, the property can't be sold or marketed for sale until a judgement is made, which could take up to or more than a year if it were to get dragged out. In the case where a seller is out to sell the property quickly, it wouldn't be in their best interest to go through with all of that and would most likely sign a termination or release from the contract and take the next best offer.

In our case we are the buyers. This property (that was out of state), we got under contract without seeing (besides agent-sent pictures and an inspection report). It ended up having major structural issues that the inspector we chose (and who was highly rated) didn’t even mention In his report. We found this out on the final walk through that we did in person, our first time seeing the property with our own eyes. The seller blatantly lied on the seller disclosure (obvious cover up attempts were noted). The seller also left the place absolutely trashed. In this case, we had the right to go back to the seller and hold them responsible for providing false information on the seller disclosure and condition of the property if we had wanted.

At the end of the day, we ended up receiving a Termination of Contract from the agent the following day after the walk through... WITHOUT even having told them we were not happy with the walk through. We believe they tried to take advantage of us as out of state investors until we flew in to do a final walk through in person, noticed the issues and knew that these issues weren’t on our inspection report or seller disclosure. The agents had been pressing us to close, ignored phone calls and texts, and even turned the power off immediately before we did our walk through. They had been completely shady throughout the whole buying process and it was a dual agency with the sellers interest above ours, but that’s a whole other story. So, we believe they presumed we were going to attempt to get out of the contract after seeing the property first hand and didn’t want any conflict by sending over the termination of contract without us asking for it. They were correct!

Lessons learned:

1. Build yourself a trustworthy team in the area you’re looking to invest in. We made the mistake of assuming this agent was on our team. Don’t assume.

2. Inspection reports will not reveal 100% of issues, which we understand. However, even HUGE “in-your-face” issues may not make it into the report. Hire a good inspector who knows what you’re looking for.

3. Contracts apparently have a lot more wiggle room than the black and white printed on the paper. Make sure you know your local/state laws and talk to an attorney if you’re unsure.

New investors (especially out of state) we hope you take notes and learn from this as we have. 

[Stefanie Brown]

I'm in Ga, so this my vary depending on your state.  But here, if the buyer is unable to close due to the loan not being clear to close by the closing date, the buyer's agent can submit a unilateral extension for 8 days, to provide the buyer more time to get their loan finalized.  Since it's unilateral, the seller does not have to agree to the extension.  If the loan is still not clear to close after the 8 days are up, the seller can terminate and keep the earnest money, as it was the buyer who defaulted on the purchase and sale agreement.