A recent letter to a financial columnist for a Philadelphia-area paper highlights one of the risks of a residential home closing. What happens if the buyer shows up without enough money to complete the transaction?
Normally, the agreed-upon price in the sale of residential real estate comes from three sources: earnest money paid when the sales contract is signed, proceeds of the mortgage loan, and certified funds (or, less commonly, cash). In the case presented to the financial planner, the buyer did not have either $9,000 in cash or a certified check for that amount that was necessary to close the deal. After what appears to have been a lengthy discussion, the seller’s broker and the broker’s attorney convinced the seller to accept a promissory note for $10,000 payable in two years with 5 per cent interest. As the seller stated, he “finally conceded at the urging of everyone in the room.” Now, four months later, the seller has not received a single payment, and he has been unable to contact the buyer. The columnist advised against legal action because of the cost and urged him to treat the $10,000 as a “sort of price reduction.”
Can such unhappy results be avoided? The answer lies in what was not said in the seller’s letter. He apparently did not have an attorney at the closing. Many sellers choose to forego hiring an attorney because the transaction appears to be very simple. This case show how such a decision can be shortsighted. At the closing, the seller was under pressure from his own broker (who would not receive his commission if the sale did not close) and the broker’s lawyer. But the seller apparently did not have his own lawyer to stick up for him and resist the pressure.
Had the seller hired an attorney (or had one available by telephone), he may not have succumbed to the pressure applied “by everyone in the room.” The lawyer’s only obligation is to ensure that the client’s interests (and no one else’s) are served. An experienced real estate lawyer would have understood the risks of an unsecured promissory note and could have advised the seller on whether to proceed with the closing or walk away from the table.
Source: Philadelphia Inquirer, “Home seller gets an unwelcome surprise,” Harry Gross, May 20, 2015