Real estate transactions can be very complicated. It's not uncommon to need to coordinate buyers, sellers, agents, attorneys, the old lender, the new lender, repair people, and the title and closing staff. With so many people in the deal and so many tasks to be completed, it can be challenging to actually hit the escrow closing date on time. However, it's important to do so.
Obligation to Close Escrow
Real estate transactions are governed by purchase agreements, which are binding legal documents. The closing date is a part of the agreement, just like any of its other terms. When either party misses the date, they breach the contract. At a minimum, they could lose their rights under the contract. The party that breaches could also find himself liable for damages to the other party.
Buyers don't always miss closing dates because of an intentional breach. Sometimes the buyer can't get the financing completed in time, or can't get her house sold and can't get the down payment money. Regardless of the reason why a buyer misses the close of escrow date, the risk to the buyer is the same. If the buyer doesn't close on time, the seller could cancel the contract and, if allowed by the contract, keep her earnest money deposit as a penalty. It's even possible that the seller could sue the buyer to force her to buy the property through a lawsuit for specific performance, although many contracts have language that preclude this.
When a seller breaches the contract, the buyer essentially has two choices. The buyer could walk away and move on, leaving the seller owning the property. Usually, buyers will request some compensation for walking away. Buyers can also sue for specific performance, having a court compel the seller to sell the property. Since the lawsuit ties up the property's title, it has the effect of preventing the seller from selling it to anyone else until the court rules.
Managing a Missed Date
If one of the parties intentionally breaches the contract, the injured party will have to either negotiate a settlement or move on. However, many missed closing dates happen because both the buyer and seller are doing what they should but something goes wrong with the financing or title work. In those instances, having both parties communicate with each other can help keep the deal together. Usually, the problem can be solved by having the buyer and seller sign an agreement to extend the closing date. This keeps the contract in force and protects both sides' rights.
- Michael A. Alfred, Esq.: Real Estate Specific Performance
- Hellmuth & Johnson: Responding to a Breach of Purchase Agreement
- Nolo: Home Buying Timeline: From Offer to Purchase Contract
- Law Office of George and Davis, PC: Buyer Information
- Westcoe Realtors Inc.: What Happens if Escrow Doesn’t Close on Time?
Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.