Real Estate Closing Process – Navigating the Complexities and Avoiding Pitfalls

April 23, 2024by BL Lawyers

The journey to homeownership is fraught with excitement and anticipation, but it’s not without its share of hurdles, especially when it comes to the real estate closing process. Closing on a home is the final step in the purchase process, a point where the transaction can either sail smoothly or hit a significant snag. Understanding the potential pitfalls can empower buyers and sellers to navigate this complex process with greater ease and confidence.

1. The Buyer’s Inability to Close

Imagine a scenario where the buyer cannot close on a home with a sale price of $800,000. The seller is then forced to re-enter the market, potentially selling the home for less, say $750,000. Not only does this put the seller at a loss, but they can potentially also pursue the buyer for the $50,000 difference, including interest, costs and legal fees.  They also may be able to claim for the deposit as part of the losses as liquidated damages. This situation underscores the importance of financial preparedness and the risks of entering into a purchase you may not be able to complete. Please consult with our office for your specific circumstances.

2. The Fate of the Buyer’s Deposit

When a buyer fails to close, their deposit remains with the listing brokerage’s trust account, necessitating legal action by the seller to recover it. Even if the seller manages to sell the property at the same or a higher price, they can still legally claim the buyer’s deposit. This highlights the significant risk buyers take when placing a deposit and the critical need for certainty in their ability to proceed with the purchase.

3. Change of Heart After Signing

A buyer changing their mind after signing the Agreement of Purchase and Sale, without even paying the deposit, faces similar repercussions. The seller can pursue them for any losses incurred upon resale and for the unpaid deposit. This scenario serves as a stark reminder of the binding nature of purchase agreements and the serious consequences of withdrawing after signing.

4. Recovering Losses Through Legal Action

Winning a lawsuit for a failed purchase may seem like a victory, but it’s not always straightforward. The process can be lengthy and expensive, with no guarantee that the buyer will have the assets to satisfy the judgment. This dilemma often leads sellers to consider whether legal action is worth pursuing or if a settlement might be a more pragmatic approach.

5. Negotiating a Closing Date Extension

For both parties, negotiating an extension can provide much-needed breathing room. Buyers may gain additional time to secure financing or sell their existing home, while sellers can stipulate terms such as additional deposits or interest on the outstanding balance. This flexibility can sometimes salvage a transaction that might otherwise fall through, benefiting both parties.

What Can Go Wrong for the Buyer at Closing?

Financial Changes and Credit Impacts

Significant financial changes or the acquisition of new debt can jeopardize a buyer’s mortgage approval. Lenders often re-evaluate credit right before closing, meaning any major financial moves, like purchasing a car or furniture, can alter the debt-to-income ratio and potentially derail the purchase.

Employment Changes

Losing your job during the closing process is a major red flag for lenders. Disclosing this change immediately is crucial, and alternatives like adding a co-signer might salvage the situation. However, the stability of one’s employment is a critical factor that lenders consider, making job security paramount during this time.

Document and Disclosure Discrepancies

Errors in the Closing Disclosure or inconsistencies in loan documents can delay closing. Names must match across all documents, and any discrepancies should be addressed well before the closing date to avoid last-minute delays.

Wire Fraud

Cybersecurity threats, particularly wire fraud, pose a real risk to the closing process. Always verify wiring instructions directly with your title company and lender to prevent falling victim to scams.

Seller-Side Closing Complications
Liens or Debts on the Title

Discovering liens or other debts on the property title can significantly delay or even prevent closing. Sellers should ensure their title is clear of any such issues well in advance of closing.

Ownership Disputes

Issues surrounding the right to sell the property, such as missing heirs or disputed deeds, can throw a wrench in the closing process. Ensuring a clean title free of any legal ambiguities is crucial for a smooth closing.

Final Walkthrough Issues

Problems identified during the final walkthrough, whether they pertain to the condition of the property or unfulfilled seller obligations, can delay closing. Sellers should strive to meet all agreed-upon conditions to avoid these issues.

Act of Fate

Unexpected events, from natural disasters to sudden illness or even the death of a party involved, can all impact the closing process. Having contingencies in place and working closely with legal and real estate professionals can help navigate these challenges.

Closing on a home is a complex process with numerous potential pitfalls for both buyers and sellers. From financial readiness to the intricacies of contract law, understanding what can go wrong is the first step in preventing these issues. Both parties must approach closing with thorough preparation, clear communication, and a willingness

Despite the potential for complications, many issues can be resolved through proactive measures, negotiation, and legal guidance. For those navigating the closing process, having an experienced legal team by your side can make all the difference. Brykman Lefler Lawyers offers comprehensive real estate services to ensure your closing goes as smoothly as possible. With our expertise, we can help you anticipate potential problems, offer solutions, and guide you through every step of the transaction. Contact us today to secure the professional support you need for a successful home closing.