RE Contract: Contingency Removal and Seller Cancellation

The CAR purchase agreement requires the buyer to actively remove contingencies.

The CAR purchase agreement requires the buyer to actively remove contingencies. In the case of cancellation due to failure to timely remove contingencies, the purchase agreement requires that the seller take affirmative action by providing a Notice to Perform, thus giving the buyer a “last chance” to meet its relevant deadline before the seller can cancel the purchase contract. Agents should be well versed in the procedures for removing contingencies and cancelling a real estate contract to help preserve their clients’ interests.

Contingency Removal

At the end of the contingency period, the buyer is supposed to sign off on contingencies or cancel the transaction per Paragraph 14B(3) of the RPA, “[b]y the end of the time specified in paragraph 14B(1) (or as otherwise specified in this Agreement), Buyer shall Deliver to Seller a removal of applicable contingency or cancellation of this agreement (C.A.R. Form CR or CC) of this Agreement.” In other words, at the end of the default contingency period of 17 days, unless otherwise agreed by both parties, the buyer either lifts or cancels.

Further, Paragraph 14B(4) states “[e]ven after the end of the time specified in paragraph 14B(1) and before Seller cancels, if at all, pursuant to paragraph 14D, Buyer retains the right, in writing, to either (i) remove remaining contingencies, or (ii) cancel this Agreement based on a remaining contingency.” It is not until the buyer lifts all their contingencies that their deposit can be forfeited. The buyer can cancel escrow and get all their deposit back before they actively lift contingencies in writing.

Once all contingencies are removed, the buyer is deemed to have accepted the property in its current condition and is committed to close escrow. At that point, the buyer’s deposit is theoretically at risk, and the seller might be entitled to all or part of the deposit under the liquidated damages clause, if initialed.

If the buyer fails to submit by the date outlined in the contract, then it is up to the seller to take steps to demand the buyer to perform by delivering a Notice to Buyer to Perform (CAR Form NBP).

Notice to Perform Delivering Requirement

The NBP form must be delivered to and “personally received” by the principals or their agents who are named in the broker box on the last page of the purchase agreement. The agent delivering the NBP should try and obtain some type of verification (signature or confirmation email) that the other party received the NBP, though the verification itself is not required.

After delivery of the NBP form, the issuing agent must wait the correct number of days and then issue a cancellation when appropriate. The necessary timeframes can be adjusted by the parties when executing the purchase contract, but in no event can a notice to perform require less than two days’ notice.

Unilateral Cancellation following Expiration of a Notice Period

After notice is properly delivered and the issuing party has waited the requisite time without appropriate action from the other side, the issuing party can declare a unilateral cancelation. This effectively terminates the contract. Most MLSs will permit the seller and listing agent to advertise the property as active once this happens.

Note: if the seller does not demand performance, the contingencies stay in place, and it is not uncommon for many listing agents to neglect this step. The buyer then will have an opportunity to lift contingencies past the contingency removal date stated in the contract but prior to seller’s cancellation.

Posted on July 5, 2019 at 6:57 pm
Intero | Category: Pivot

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