Pop Quiz For Builders, Remodelers & Subs: Legal Issues In Residential Construction

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Sales of Homes (For Builders):

(1) Q: If a buyer who has executed a Purchase Agreement for a spec home notifies you, the builder and seller of the home, of one of the following, does the buyer have a valid reason for failing to close on the property?

a. Failure/inability to obtain financing for the purchase of the home.
b. Failure/inability of buyer to sell current home.
c. Newly discovered information regarding undesirable aspects of the neighborhood.
d. Defects founded during the inspection process.

A: Each of the answers depends upon the exact language used in the Purchase Agreement, but the following information should also be noted:

a. It depends, but likely yes. Failure/inability to obtain financing for the purchase of the home is generally included within a purchase agreement as a contingency that must be met, and if it is not, the buyer has a valid reason for not closing. However, a buyer must have used reasonable and good faith efforts to try to obtain financing, but despite such efforts, was unable to obtain financing.

b. It depends. Failure/inability of a buyer to sell his current home is a valid reason for not closing only if it is included as a contingency within the purchase agreement.

c. Likely No. Newly discovered information regarding undesirable aspects of the neighborhood will almost always not be valid excuse for a buyer to back out of a purchase agreement.

d. It depends. Defects founded during the inspection process may be provide a valid reason for a buyer not to close if the buyer timely and properly disclosed such defects, and depending upon the language of the purchase agreement, if the builder failed to timely remedy such defects. A good purchase agreement will state that defects not disclosed within the provided period (e.g., 10 days) are waived. Iowa courts have strictly upheld this type of language.

(2) Q: If a buyer who has executed a Purchase Agreement for a spec home fails to close on the property without a valid legal defense or excuse, can the builder/seller sue the buyer and ask the Court to force/compel the buyer to close?

A: No. However, the builder/seller can sue for monetary damages and is entitled to all available damages stemming from the buyer’s breach of the purchase agreement,  including (a) the eventual difference between the purchase price under the purchase agreement and ultimate purchase price of the property; (b) all of the seller’s costs to hold, carry, and maintain the property after the closing date until the eventual resale and close date, including mortgage interest payments, utilities, insurance, property, taxes, etc.; (c) any additional consequential damages; and (d) all costs and reasonable attorney’s fees per the language of the purchase agreement.

Please see full article below for more information.

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