WORTHLESS AGREEMENTS
Shari L. Coxford © 1997
The closing table - the place where broken deals lie scattered like carcasses in a vulture's den. Many a deal has fallen apart at the closing table. Many a buyer has had to ante up more money than expected. Many a seller has walked away with less.
I'm sure we've all heard tales of horror stories at the closing table. But how does it happen? And what can you do to protect yourself?
The first thing to remember, and this is key - The Contract Is Boss. They can tell you whatever they want. They can make all kinds of promises and assurances. They can argue 'til the cows come home. But if it's not in your original contract, that critical document that the buyer and seller sign when the deal is first struck, and if it's not in a written and signed by all addendum to the contract, then it's a worthless agreement.
Let me say this again, because I can't say it loud enough: Whatever agreement you have with your buyer or your seller, if that agreement is not spelled out clearly in the contract, then you have no recourse to make the other party honor the agreement. An agreement that's not in writing is absolutely worthless. Go into a courtroom, or tune into Judge Judy or Judge Wapner on TV, and see how often the phrase, "But he said.... but she told me.... but he promised...." comes up. And pay close attention to the judge's reaction. While the judge may sympathize, unless you can offer solid proof to validate your claim, there's not much they can do for you.
Let me give you an example. I'll take you back to my very first real estate closing. I was your average first-time home buyer. I knew nothing. Not one thing. I was as green as they come. We had a contract and a lender and a realtor. One day the realtor called me up and said, "Shari, we've got a small problem. The lender needs an appraisal, and the seller is supposed to take care of it but they don't have the money right now. This is really important, if we don't get it, we can't close. If you could put up the money for the appraisal, you'll get it back at closing, I promise."
So the realtor came to my house, and I wrote him a check. But I had also prepared a document that stated that this money would be returned to me at closing or, if a closing didn't happen, when the deal fell through, and the realtor and I both signed and dated it. The phrase I used was, "Under any and all circumstances."
Closing day came, and according to the settlement statement, they were not going to reimburse me for the appraisal. Until I whipped out my signed promise from the realtor that I'd get the money back. He had to reimburse me out of his commission.
Since then, all of my closings have gone smoothly - until today. Normally I use my own contract, whether I'm buying or selling - until today. And I've not purchased anything where a realtor was involved again, that is - until today. Are you getting the idea that today's closing did not go well? If you poked a stick into a hornet's nest, you'd be attacked by a swarm of furious hornets. That sums up the seller's frame of mind at the end of the closing. Me? I wasn't furious, just disgusted.
And the strange part of it was - we both got what we expected to get. I paid what I expected to pay, and he received what he expected to receive. So what went wrong?
The contract went wrong. We all agreed on what we wanted, but the realtor's contract did not accurately reflect our agreement. And she was bound and determined that I sign, at the closing table, changes to the contract that I hadn't seen before. One of those changes involved taxes.
I had agreed to pay the 1997 property taxes, but no taxes prior to that. No back taxes. The original agreement said the taxes would be prorated. The new agreement, the one that appeared at the closing table, said they would NOT be prorated - period. That means I'm liable for any and all taxes, including taxes prior to 1997.
It was explained to me that the seller, another investor who was flipping the house to me, could not have purchased the property if back taxes were owed. That simply is not true. You can purchase a property and take on the debt of back taxes, it's done all the time. A document was produced that supposedly indicated that the taxes were paid through 1996. And everyone kept saying, "There are no back taxes owed, so it doesn't matter what the contract says. It's a moot point."
"It doesn't matter what the contract says." If someone tries to lay this line on you, you better watch your back, folks. Remember: The Contract Is Boss.
The vision loomed large before me, of a closing day where I'm selling the house, where I suddenly discover there are thousands of dollars in unpaid taxes. And in my vision I go back to the closing attorney of purchase and ask, "What gives? I'm not supposed to owe all this." And the closing attorney pulls out the contract of purchase, which says, "Real estate taxes... shall not be prorated as of the date of closing." Which means the seller will not be crediting me for the portion of the taxes owed before the closing date. Which means I'm liable for all taxes owed, period. No exceptions.
Much to the anger of everyone involved, I refused to sign a new contract until it clearly stated that I agreed to be liable for the 1997 taxes, but not any taxes prior to 1997. What it should have said was: "Seller agrees to be liable for real estate taxes prior to and up to January 1, 1997; buyer agrees to be liable for real estate taxes for 1997."
The moral of the story is: Read everything you sign. Understand everything you sign. And make sure every aspect of your verbal agreement is included in the written contract. If it isn't in writing, it's a worthless agreement.
The Contract Is Boss.
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Shari Coxford is a former member of Georgia Real Estate Investor's
Association and founder of the
All Free Spot freebies web site, which
offers tons of free stuff at:
http://www.allfreespot.com
You may reprint this in newsletters and on Web pages as long as you
use it in its entirety, including this resource box with the author's
information. Author retains ALL copyrights. To reprint this article in
traditional print media, please contact the author at:
Shari Coxford
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