Signing a contract with a closing date in 4 months..

DH and I found a house we liked..agreed on a price and got the inspection. It's a 2 fam in queens- we stated several times that we want the first floor vacant and will keep the 2nd floor tenants. Listing agent tells us "of course, of course" and tells us we need to get into contract ASAP. Listing agent also asks me if, when I sign the contract, if I can bring it home with me and have the listing agent pick it up and bring to seller's attorney rather than having my attorney mail it to the seller's attorney to save 1 day in shipping. The listing agent is in a RUSH to get this contract signed.

We go to sign the contract- it states that we are taking both tenants AND the 1st floor's lease expires July 31. So we don't sign the contract. I'm pissed because we wasted our time and the attorney's time. And I'm pissed because this is not what we agreed on.

I call the listing agent and tell them we didn't sign because this isn't what we agreed on. She tells me that since the lease for the 1st floor ends July 31, there is no way to guarantee it will be vacant in writing. But she tells me orally that the 1st floor tenant is willing to move out and she (listing agent) will find her an apartment and waive her fee. I tell her I can't sign a contract that says one thing and put 5% down but depend on this unofficial oral promise. Basically the listing agent is telling me "I am 99.99% sure the 1st floor apartment will be vacant by May because the owner is willing to let them move out before July 31 and they are willing to move out BUT I can't promise that in writing." Well, I'm not signing the contract the way it is.

So now the listing agent tells us to have our attorney put in the contract that we will close on or about July 31 and that if the 1st floor isn't vacant by Sept 1 then we have a right to void the contract. Also the listing agent isn't talking to the seller's attorney because they got on each other's nerves so she is unwilling to talk to the seller's attorney about this.

My question is- Is it too early to sign the contract with a closing date of July 31? We are willing to close before July 31 if the 1st floor is vacant..but the problem is if I apply for a mortage now and then don't close until August, my committment might expire right?

Any advice?

Re: Signing a contract with a closing date in 4 months..

I think the biggest risk for you as a buyer is that the interest rates go up. Also, if anything changes with your financial situation, it could affect your ability to get a mortgage. I would definitely talk to your mortgage loan officer about the implications of doing an extended closing date like that. Also, I know the FHA guidelines are changing as of April 1st in terms of pmi - I believe it's becoming permanent (for the life of the loan), and won't be able to come off after 5 years regardless of how much equity you have in the house. Also, the pmi rates are going up, too.

What does your attorney say?

Do you know if the seller will even agree to what the listing agent is proposing? If the listing agent isn't speaking to the seller's attorney, how do you know the seller will be on board or the attorney won't advise his client against putting such contingencies in the contract.

And how would you feel if the 1st floor tenant doesn't vacate and you have to void the contract? You will have wasted a LOT of time only to have things fall apart months from now. Generally, the fewer contingencies, the better!

Re: Signing a contract with a closing date in 4 months..

How can you have an on or about date of July 1st, but no promises the tenant will be gone until September 1st? So you close and the tenant is still there. How do you void a contract that has already been executed without a lot of trouble? Let's say you proceed because voiding is too much trouble. Now it's YOUR responsibility to get them out?

The only way I would go forward is if the tenant is OUT by the closing date.

Re: Signing a contract with a closing date in 4 months..

Posted by Karen

How can you have an on or about date of July 1st, but no promises the tenant will be gone until September 1st? So you close and the tenant is still there. How do you void a contract that has already been executed without a lot of trouble? Let's say you proceed because voiding is too much trouble. Now it's YOUR responsibility to get them out?

The only way I would go forward is if the tenant is OUT by the closing date.

Re: Signing a contract with a closing date in 4 months..

Signing a contract with a closing date in 4 months..

We are in a similar situation minus the tenant issue. We are in contract for a house with a on or about close date of 7/15, MANY people wanted to house so to secure it we went into contract ASAP eventhough the seller wants to close in the summer, we are scared the rates will go up but wanted the house so bad that we are taking that risk. The tenant issue though concerns me--if they are not out where would you live??

Re: Signing a contract with a closing date in 4 months..

Signing a contract with a closing date in 4 months..

The saga continues. I called my lawyer and asked if he could insert the contigency in the contract. He reiterated to me that he needs the seller's attorney to call him so he is sure that the seller is ok with this.

I called the listing agent and told him this. He gave me pushback and said to tell my attorney to just go ahead and put it in the contract. I told him my attorney will not do this without the seller's attorney calling him. For whatever reason, the listing agent doesn't want to talk to the seller's attorney but after I stood firm, he said he would do it.

There are 2 listing agents- I know 1 of them had a dispute with the seller's attorney but I'm not sure what the deal is with the other one. And I was just told that because I told 1 listing agent about a conversation I had with the other one, that they got into an argument. Seriously?!

Message edited 3/18/2013 10:21:35 AM.

Re: Signing a contract with a closing date in 4 months..

Why doesn't your attorney just reach out to the seller's attorney to discuss the issue, since it's a contractual one? He can just say that you've been advised by the seller's agent that the seller is willing to agree to this provision (about the contract being contingent on the house being vacant by x date). Your attorney can say that you are willing to agree to it (if you are), and ask that the seller's attorney speak to his client about it.

Or, he could just insert this provision into the draft contract, send it back to the seller's attorney to review (explaining that the listing agent advised that this is agreeable to the seller), and please call him to discuss. Either way would work.

But to get this resolved - someone needs to reach out to the seller's attorney and make sure the seller and his attorney are on board.

If the contingency about the tenant being gone is in the contract, then there's no issue with you getting out of the contract and getting your down payment back. That's the purpose of putting the contingency in. If the tenant doesn't leave, then you can get out of the contract and get your money back. It's just like the mortgage contingency that is always in every contract (if buyer can't get a mortgage, then buyer can get out of the contract and get their down payment back).

But you just have to recognize the risk you are taking by waiting until Sept. 1 to see if you will actually be able to get the house vacant. If you decide to walk away at that point, you will be facing a different market 6 months from now that you are now. Prices may be higher, rates may go up, inventory will be different. While you are in contract, if you see another house that is perfect, you will be unable to act on it, because you are tied up in contract.

It's also a gamble for the seller, to enter into a contract with this contingency. Has anyone talked to the seller about trying to work this out another way? I've sold houses where a tenant was in a part of the house and had a lease, but the buyer wanted it vacant. Seller was able to negotiate with the tenant to terminate the lease early and the problem was solved. Has this even been explored as an option? If it could be addressed upfront, it would be best for everyone. The less uncertainty/fewer contingencies the better.

ETA - What's in it for the seller to go for this? If he is getting a lot of interest on the house, and it's in an area where it's not unexpected to have tenants living in the house (or it would appeal to investors), then I don't see why the seller wouldn't just wait to get an offer from someone who will take the house "as is" with the tenant. I am skeptical as to whether the seller will agree.

But assuming he will - I guess you know if it's worth the risk. If the house is truly unique for your desired area and price point, and you recognize the downsides (including the possibility you may not get the house in the end), then it may be worth it to you.

Message edited 3/18/2013 11:30:10 AM.