Most Common Closing Glitch for Buyers
To quote a philosophical Bruce Lee, pioneering marshal arts movie star, when he was interviewed shortly before he died from accidental fight injuries in filming: “There is only one way to come into life, but many ways to go out of it.”
Many people want to know what is the most common way for a home buyer to get killed in the home buying process. There are so many ways to get burned, but one way seems to be emerging as the biggest single carbuncle on the closing process — THE PICRA.
A classic example came to our website today when a new homeowner wrote us and asked what she could do about leaking plumbing, failing HVAC, and other problems with the house which she bought 3 months ago. Her home inspector found and highlighted all the issues during the home inspection phase. I have not heard, but I assume, the buyer had a realtor who guided her through the drafting and the execution of the Property Inspection Contingency Removal Addendum – the PICRA. Here is what we wrote to her:
“The single thorniest issue in real estate closings these days is the PICRA. They are complex and require the utmost attention in drafting before signing. Buyers too often drop their guard and accept the promises in the PICRA by the Seller as a full resolution of the issue. But they are only promises. By a person who may be leaving town . . .or who may be short selling their home and penniless . . . or who may be trusting and paying a crooked contractor to tell them the work is done .
“To actually enforce the promise, you must inform your settlement agent that you have these promises and ask how he/she recommends enforcing them. Plan A is usually to do a thorough walk through inspection the morning or the day before closing to confirm the promised work is done. Take your inspector back with you if you must. Take your realtor. If work remains incomplete, either escrow plenty of the seller’s money to cover the repairs or delay the closings until the work is done. Plan B is to just enter into an Escrow Agreement at the time of the PICRA providing the funding, the detailed list of work to be done, the standards for the work, and how disputes as to the adequacy of the work will be resolved, etc.. It usually requires a lawyer to draft a proper Escrow Agreement. Preparation of these agreements by non-lawyers may be a violation of Unauthorized Practice of Law rules. If the industry can’t improve the PICRA forms, I think it may drive more buyers to use legal counsel before signing off on PICRAs in the future.
“If you are not an experienced real estate buyer, you are not likely to understand all of this. You would be at the mercy of your realtor or your closing representative to guide you through all of this. This is graphic illustration of a major difference between hiring a title company to “conduct” your closing and hiring an attorney to REPRESENT you at your closing. The latter are generally more focused on protecting the buyer’s rights and leveling the playing field, whereas the former are generally more focused on just getting the deal closed. There are always exceptions.
“But the final safety net for a buyer with undone repairs at the time of closing is to obtain something in writing that makes those promises by the Seller enforceable for you after closing. Again, lawyers are better at addressing this need than non-lawyers. Without something in writing at closing commemorating the Sellers promises, the Seller can use a law called the Doctrine of Merger to say that their promises died with the acceptance of their deed by the Buyer. A Buyer needs a specific written “survival agreement” to make sure the Seller’s promises can be enforced against him after closing.
Of course, conscientious realtors and closing representatives should help a Buyer even after closing to enforce repair promises. Delaying closing is the safest alternative but that is not always possible if the moving van is in the driveway or perhaps the seller is doing a short sale and facing an imminent foreclosure if his loan is not paid off. Ultimately, the seller is the responsible party but shame on the professionals in the deal if they don’t give their best efforts to protect a vulnerable Buyer from having the Seller walk away from repair promises. .