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8 of the Most Common Problems Buyers Encounter After the Contract is Signed...and How to Deal with Them

“The Real Estate Guys” Radio Broadcast
December 8, 2002

8 of the Most Common Problems Buyers
Encounter After the Contract is Signed…
and How to Deal with Them

#1 Problem: You want to assign the deal (“flip”) to a third party but the Seller won’t agree.
Solution: An agreement is assignable by law unless it was intended to be nonassignable or an assignment would impair the seller’s chances of obtaining the buyer’s performance. Farmland Irrig. Co. v Dopplmaier (1957) 48 C2d 208, 308 P2d 732. Document your request and Seller’s response. Seller required to be reasonable, unless contract specifies otherwise.
Planning tips:
  • Provide contract language allowing Buyer to assign to entity owned and controlled by Buyer, without Seller’s consent.
  • Specify parameters upfront for Seller’s approval.
#2 Problem: You’re running out of time to complete your due diligence and you’re worried about your deposit “going hard” before you are ready to waive your contingencies.
Solution: Ask for more time. Give conditional approval.
Planning tips:
  • Include language in contract that your due diligence period does not start until you receive all the documents required from Seller.
  • Include language that Seller is required to deliver to Buyer all documents reasonably requested by Buyer.
  • Don’t deliver document request list until after escrow opened.
#3 Problem: Your due diligence reveals actual net operating income less than was represented in the set-up.
Solution: Ask for reduction in price.
Planning tip: Include language in contract that providing for automatic reduction in price based on formula if it turns out the financials were incorrect.
#4 Problem: Interest rates spike up and you can’t get the loan you pro forma’d the deal at.
Solution: Ask Seller if he is willing to carry back paper. Worst case: disapprove financing contingency. Real worst case (for Buyer): Buyer tries to disapprove financing contingency but Seller disputes Buyer’s good faith in doing so on grounds that financing available, only with higher points.
Planning tip: Make sure you include language in loan contingency that puts cap on rate and points.
#5 Problem: You want to disapprove of a contingency, but the Seller disagrees.
Solution: Be reasonable. Document your position and Seller’s response. Implied covenant of good faith and fair dealing allows Seller to dispute if you are canceling on a whim so be careful.
Planning tip: Include language in contract to maximize your control and your ability to cancel within your sole, absolute and arbitrary discretion.
#6 Problem: You disapprove of a repair item, Seller tries to repair, but you dispute the repair was done sufficiently.
Solution: Put your position in writing to Seller: that you believe Seller has not fulfilled its obligation to repair.
Planning tip: Include language in contract that gives you right to verify repairs done to your reasonable satisfaction.
#7 Problem: During your due diligence, you or one of your agents gets injured and it’s Seller’s fault.
Solution: If you have standard hold harmless and indemnification language, could be problem.
Planning tip: In contract, include language that carves out from standard indemnification any problems due to Seller’s negligence or gross negligence.
#8 Problem: You end up in a lawsuit, you win, and you want to collect your experts’ and consultants’ fees and costs.
Solution: Expert witness fees and other items not otherwise recoverable as court costs under Ca Civ Pro § 1033.5 arguably may be recoverable as special damages under a contract provision for recovery by the prevailing party of “all necessary expenses.” The Supreme Court has noted: “Our present analysis, which involves statutory construction, may not be dispositive in a matter involving the effect of a contractual agreement for shifting litigation costs, which turns on the intentions of the contracting parties.” [Davis v. KGO-T.V., Inc. (1998) 17 Cal.4th 436, 446-447, 71 Cal.Rptr.2d 452, 457, fn. 5 (emphasis added)] If claimed as contract damages, however, the fees and other expenses must be specially pleaded and proved, rather than claimed as court costs after judgment. [First Nationwide Bank v. Mountain Cascade, Inc. (2000) 77 Cal.App.4th 871, 877-878, 92 Cal.Rptr.2d 145, 149, 150]
Planning tip: Include specific language in contract that prevailing party entitled to recover “all necessary expenses (including, without limitation, all consultants and experts).
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