Closing Escrow Under the RPA — Part 5 Understanding CAR Forms
Today, in part 5 of our Understanding the CAR Form Series we examine the process to close escrow. The Pittman v. Canham case sets forth the legal precedent related to closing the transaction and what happens when the parties mutually fail to close on time as required by the contract.
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In part 4 of this series on the CAR forms we examined the escrow deposit and the specific performance and remedies related to buyer and seller breaches of the agreement. Today, we look at closing the transaction under the CAR forms, the timelines and important legal implications related to complying with the written agreements. Failure to follow the contract, intentionally or unintentionally can create significant legal issues.
Under paragraph 1D of the RPA parties select a specific date or time period from the entry into the contract when the transaction is required to close. Absent a written extension of the time period pursuant to paragraph 29 of the RPA the closing timeframe is not to be extended.
The contract states that “time is of the essence” in the performance of the RPA. In general what this means is that the performance within the time outlined in the contract is essential to the performance of the contact and that the failure to complete the contract within the guidelines of the time requirement is a breach of the contract. (See generally Black’s Law Dictionary). The RPA further states in paragraph 29 that “Neither this Agreement nor any provision in it may be extended…altered or changed, except in writing Signed by Buyer and Seller”. Many real estate transactions run past the closing date and still close. This is fine, the subsequent act of the parties completing the transaction acts as a ratification of the extension. But from a legal standpoint, there is likely little that requires the parties to actually carry out the completion of the transaction.
The leading case on this issue is Pittman v. Canham. In this case two parties entered into a real estate transaction and set forth a closing deadline. A timeframe in which the parties agreed to complete the transaction. The time period came and went along with a few more months and the parties had not extended the closing time period in writing. The Buyer, wanting to close the transaction sued for specific performance. The court stated that “The failure of both parties to perform concurrent conditions during the time for performance results in the discharge of parties’ duty to perform…”. Each party to the RPA has an independent obligation to perform within the time allotted in the RPA to complete the transaction. When both parties fail to timely complete the transaction, by law the contract lapses and is of no further force or effect. In an upswing market, this can be dangerous for a buyer or seller who are contemplating the close of the transaction. It could be problematic for the buyer who sold their previous home with the expectation of relocating to a new home. It could be problematic for a seller who closes on a replacement home in anticipation of completing the sell of a current home. Whatever the reason failure to close could have significant consequences.
The contract addresses this situation and builds in a mechanism to attempt to compel timely closing of the transaction. Under paragraph 14G of the RPA, either Buyer or Seller can give a Demand to Close Escrow to the other requiring the timely performance. This is a 3-day notice (which may be given no earlier than 3 days prior to the scheduled close of escrow) that upon expiration will either allow the Seller to cancel the contract with the Buyer or give Buyer the ability to cancel or proceed with a specific performance lawsuit against the non-performing Seller. While the use of this form is sporadic, under the decision of Pittman it is necessary to preserve the rights of the client you represent. Further, if you know that an extension will be needed, whether for the lender to finish loan processing or for seller’s new property to close, be sure to seek an extension in writing. There is no guarantee that the other side will perform if the contract lapses and considering the language of Pittman, that performance, likely cannot be compelled.
It is important both for the client and the agent that the proper steps are taken to insure that your house purchase is closed as anticipated. Taking the proper steps early will be the key to success in any future action, if necessary. If you or your client are facing an issue related to the close of escrow, the attorneys at BPE Law Group have significant experience in handling just such an issue.
In the next installment of this series we will begin to examine disclosures and how they play a part in the California home purchase transaction.
The attorneys of BPE Law Group, PC. have been advising our clients on real estate, business, and estate planning issues for over 20 years and have assisted numerous clients in business and real estate matters and have represented clients in hundreds of lawsuits. If you have questions concerning any legal matter, give us a call at (916) 966-2260 or e-mail Keith at email@example.com or Robert at firstname.lastname@example.org. Our flat fee consults for new clients may get you the answers you need for the questions you have.
The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are facing a legal issue of any kind, get competent legal advice in your State immediately so that you can determine your best options.