Time Limits Are Imperative For Contingencies.
Contingencies play an important role in all contracts. “Time is of the essence” are magic words put into almost all contracts, which means that you have to move forward in a reasonable and timely manner. However, the contingencies should have their own time limits as well. Putting time limits on contingencies helps all parties to a contract understand what must be done and at what time.
Most commonly known contingencies are found in real estate sales contracts. There is typically the inspection contingency, mortgage contingency and the attorney approval or modification contingency in Contracts for the sale of real property. You may have noticed these contingency clauses all have time periods. Meaning that the contingencies must be completed within a time certain, or the buyer may chose not to purchase the property. If the buyer does not notify the seller that he/she chooses not to purchase and allows the contingency time to expire then the contingency is over and the buyer must purchase the property. Most inspection and attorney approval or modification contingencies are for 5-7 business days. Most mortgage contingencies are for a longer period of time and depend upon the lenders idea as to when the loan can be approved.
Contingences are also used in the purchase of businesses, but I’ve seen a few lately without time limits. With the parties not understanding what their agreement means is the easiest way to become litigants. When preparing or signing a letter of intent to purchase a business, make sure all of your contingencies have time limits. As the seller, you do not want the buyer to have the luxury to review and approve your books and records up to the date of closing.
The problem with not having time limits for contingencies, is that they buyer can choose to exercise their rights under their contingencies at any time (so long as it’s reasonable). When disputes arise most parties disagree with what is reasonable. Then parties are forced to allow a Judge to make that decision for them, which is a very expensive experience.
A very simple way around this problem is to simply insert time limits into all of your contracts. Even if it is a complex multiple step transaction type of contractual relationship, limit the time period of that review. It is easier to protect yourself at the beginning of a contractual relationship than to litigate a legal position after the fall out of that relationship.
Short Sale Basics
In these tough economic times, many people consider getting involved in a short sale of real property. However, most do not understand what it takes to close short on a piece of property. The term “short sale” for real estate means that the sale proceeds are less than the balance of the mortgage or mortgages for that real estate.
It takes a lot of time and effort to accomplish a successful short sale. Cooperation and hard work is needed. The seller and lender are both in tough positions. The seller can no longer afford their home and can not pay the mortgage. The lender has no desire to take the home or go through costly foreclosure proceedings.
The seller has to start the ball rolling by finding the right department and person within their lender to assist in this process. It takes many phone calls and letters to get a person with authority from the lender. Also, do not make the mistake of trying to go through the lenders mortgage work out department if you really just need to get out of the property and mortgage.
The seller has to provide the lender with many documents before lenders even consider the option of a short sale. Some of these documents include: (1) preliminary net sheet, (2) hardship letter, (3) proof of income and assets, (4) copies of bank statements, (5) comparative market analysis, and (6) letter of authorization.
The seller should contact a real estate agent, accountant and attorney. Many agents will reduce their commission amount on a listing that needs to sell short. Accountants can explain and go over the tax ramifications (which vary for each individual). Attorneys can help negotiate with the lender and buyer, determine if the loan qualifies for a deficiency judgment, work within foreclosure proceeding, and close the transaction.
Be aware that the lender is not in a hurry to agree to a short sale. The lender will take as much time as it wants and will periodically ask for more information. Lenders will only agree to a short sale if it makes financial sense.
The buyer has to have a lot of patience, be willing to cooperate with the lender and, most importantly, have the money to purchase the real property.