2022 Mid-Year Review
By David Hamerslough
July 13, 2022
As summer kicks into high gear, the following are some of the real estate issues to consider, given recent developments and market activity over the past six months.
Interest rates have risen, prices have fallen, and buyers are being more cautious. Are we in a market transition or just a temporary lull? Talk to six qualified California brokers and agents about this issue, and the answers vary, depending upon such factors as the price point, the neighborhood, and buyers’ and sellers’ motivations. Talk to six qualified California real estate attorneys, and they will tell you that this is a market with a potential for claims from both buyers and sellers for a variety of reasons. I previously addressed the type of issues that may arise in this type of market in an article dated December 10, 2019; I suggest that you review it if you are interested in seeing the type of issues that a qualified California real estate attorney will look at.
Sadly, the cancellation epidemic continues. Based on my discussions with other qualified California real estate attorneys, the volume of cancellation disputes shows little sign of decreasing. Over the past six months, I’ve written several articles on this epidemic and some of the issues that come up as a result. Please refer to these prior articles for more details. Early on in the epidemic, the disputes were primarily between buyers and sellers. What has changed is that real estate licensees are now far more likely to be involved in a claim based upon either a buyer or seller alleging that they received improper advice and/or representation.
The revised C.A.R. purchase agreement and Seller Property Questionnaire have now been in use for a little over six months. I have written several articles identifying some of the issues that have arisen with regard to these two new forms. Please refer to those articles, as these issues continue to arise and are resulting in claims.
In addition, I have observed that ¶¶ Q.5 and 6 in the C.A.R. RPA grid are being left blank with some frequency. These are the paragraphs that identify who will be responsible for the payment of government-required point-of-sale inspections, reports, and corrective/remedial actions. While these do not exist in every jurisdiction, where they do exist and these paragraphs are left blank, a potential exists for a buyer or seller to cancel the contract based upon a lack of agreement on these terms. It is my understanding that some real estate licensees leave these sections blank because they believe that who will pay for these costs are addressed automatically in escrow by an unwritten custom and practice in the jurisdiction where the property is located. No such practice exists; even if it did, there is no contractual language binding the buyer and seller to such an alleged practice. Another issue that has come up in regard to the allocation of costs is where an agent agrees to pay for any of them. If that is going to occur, then the agent should prepare a separate agreement with their client rather than indicating in the purchase contract documents (such as an addendum) that the agent will pay any such costs. If that were to occur, then arguably the agent may become a party to the purchase contract and potentially responsible for any breach of the contract by their client.
Other issues that have come up in the past six months with respect to the 2021 RPA include the following:
- Deposit dispute issues have prompted more attempts to write purchase agreements that call for “non-refundable” or “early release” deposits. A number of issues can arise from any such attempt in view of California case law. Buyers and sellers should consult with their own qualified California real estate attorney if they want to consider drafting such a contract provision and pay special attention to the warning in the RPA not to do so;
- The cost and availability of homeowners’ insurance continues to be a problem for some buyers. While PRDS has a stand-alone insurance contingency, the C.A.R. RPA does not have a similar provision. Evaluating insurance issues under the C.A.R. contract falls within the investigation contingency. If that contingency has been waived or removed, then a buyer using the C.A.R. RPA has no basis to cancel the contract where the buyer’s lender refuses to make the loan because the buyer cannot obtain fire insurance;
- There is still some confusion with the language in ¶¶ L.4, 5, 6, and 7 of the C.A.R. RPA grid. These paragraphs identify the timeframes for the removal of various contingencies. The ongoing confusion stems from the language “or five days after receipt, whichever is later.” This language defines the timeframe for the contingency. Paragraph 8.H of the C.A.R. RPA now specifies that if the contingency has been removed or waived, there is no cancellation right for the late Delivery of documents. The late Delivery of documents does not revive the contingency. In that circumstance, the buyer would have to resort to other common law legal theories to attempt to justify a cancellation. If a buyer or seller has not received all documents before their contingency is to be removed, then the solution is to either not remove the contingency or request more time to remove it so that all the necessary documents have been provided;
- The new C.A.R. Tenant-Occupied Property Addendum (TOPA) has caught some buyers by surprise. The C.A.R. RPA mandates use of this form every time the property is occupied by a tenant. The issue that has surprised buyers is that TOPA contains limitations on buyer remedies in the event the tenant is to be removed from possession prior to close of escrow but the seller is unable to do so. In that circumstance, the buyer may cancel, but their sole remedy is their out-of-pocket losses or, in the alternative, they can close escrow but contractually waive any right to make a claim for damages caused by the delay. The best way for buyers to understand the issues raised by the TOPA is for them to consult with a qualified California real estate attorney or local landlord-tenant attorney before signing the TOPA; and
- Paragraph 25.K of the C.A.R. RPA now provides that electronic copies or a link to a documents are authorized modes of Delivery. I’ve had two cases where this has caused contractual rights to be lost because the recipient of the link did not realize that Delivery in that manner was acceptable. Buyers and sellers need to be aware of this method of Delivery prior to signing the RPA and the fact that receipt by their agent constitutes receipt by that party. If a buyer or seller is uncomfortable or unable to receive documents electronically or through a link, then the C.A.R. contract requires that that method of Delivery be rejected within three days of receipt of the link. The method for doing so is to use ¶ 6 of the C.A.R. form Receipt For Reports.
Happy Fourth of July.