Joseph Domino

DRE: SA541769000


(480) 390-6011
(602) 230-7600 (Office)

My Blog

Time is of the Essence, believe it!

Posted On: February 3rd, 2015 3:18AM

Most real estate contracts contain "time is of the essence" clauses.  Unfortunately, it is also one of the contract provisions that is most likely to be overlooked or abused.  Too often one party or the other fails to act within the time that is required to insure a smooth transaction.

What does it mean to use and agree to a "time is of the essence clause"?  It means that you agree to and understand that your actions may determine if the sale and closing of the property occurs on time or even at all. In real estate transactions, performance of one contract provision within the period specified is necessary to enable performance of subsequent provisions by the other party.

Lenders in particular are often guilty of ignoring "time is of the essence clauses". They see a closing date of aa/bb/2015 and base their timelines on this date. But what if the buyer is in another state?  What if there is a holiday near the date?  The closing actions such as signing documents, wiring money, approving the HUD 1 and recording deeds may take longer than a standard transaction. Waiting until the last minute to perform your action may not give the next party time to perform theirs. Failure to act within the time required may constitute a breach of contract.  If Party B feels that they cannot act because they are waiting for Party A, problems could arise and jeopardize the sale.

Without a time is of the essence clause parties would only be required to perform within a reasonable time.  Imagine trying to meet a Close of Escrow date if all parties only had to perform such important actions like inspections, appraisals, repairs and funding loans within a reasonable time?

Whenever a new transaction is initiated, it is important that all parties be made aware of their obligations and time requirements. It is essential.

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Rules are meant to be broken… or are they?

Posted On: February 3rd, 2015 3:07AM

In today's society rule breakers are often lauded as creative, thinking outside the box, even genius.  We often hear that rules are meant to be broken.

When Dick Fosbury perfected the “Fosbury Flop”, was he breaking the rules?  No, since there was no rule that stated which direction a jumper needed to approach the bar.  He merely found a better way to do something within the rules.

 

When Charles Ponzi devised his infamous “Ponzi Scheme”, he was also thinking outside the box.  I would bet he would argue that rules are meant to be broken.  But the Securities and Exchange Commission did not see it that way and he was deported as an undesirable alien after costing investors millions of dollars.

 

The real estate business is one that allows for parties in a transaction to think outside the box in order to get a deal done.  Having an agent that can think creatively really can help a client accomplish their goals, whether buying or selling.  But creative thinking that violates the rules set forth by regulators will only result in heartache.

 

Recently an acquaintance of mine was trying to purchase a new home.  The agent she used played fast and loose and the result was disastrous.  In Arizona the home closing process is pretty straight forward. Buyers and Sellers use escrow agents to handle the transaction.  The parties meet with the escrow agent (usually at separate times) to perform their contract obligations until a settlement is reached.  Once all the tasks are completed a new deed is recorded and escrow is closed.  Then the buyer is allowed access to the home.

In this case a well-meaning (or unknowledgeable) real estate agent decided that the closing was “imminent” and allowed the Buyer to move in to the home before the deed was recorded.  This is strictly against the rules.  Unfortunately, at the last minute there was a problem with the buyers funding.  The loan did not get funded, the escrow did not close and the deed did not get recorded.  The buyer needs to resolve the issue of financing which could take days, maybe even weeks.  Now we have a buyer who has moved into the home and may be asked to leave, a Seller who can’t get paid still owns the home and is responsible should something go wrong with the house and agents who won’t get paid until it is all resolved.  If this gets resolved quickly the parties will likely forgive and forget.  However, if it drags on for weeks I am sure we will be seeing attorney’s involvement, fines levied and likely a “commissionectomy” for the agent.

 

In our business case, the solution is simple:  Follow the rules and avoid unnecessary work, cost and hardship.  Sometimes we think outside the box, which is OK as long as we stay inside the rules.

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