Purchasing a Property when you already own a property (Part II)

            In Part I of our post, we focused on the issues that can transpire if Buyers planning on purchasing the new property for their primary residence and on holding onto their current property – at least until after closing.  In this post however, we will focus on what happens if Buyers know they have to sell their current property in order to purchase a new property.

            The first thing Buyers should do right before making an offer on a home – or shortly after the offer is submitted – is to check with their lender if they need to sell their current property in order to purchase their new property.  The reason it needs to be done so early in the process is if the lender says Buyers need to sell their current property, they can let the seller know early on, so the seller is not “blindsided” by it later in the process.  The seller may still want to get out of the transaction, but at least the costs Buyers spent on the transaction will be nominal, if any at all.

            If the seller decides that he/she wants to move forward with the transaction, then Buyers need to add what is known as a “sale contingency clause”.  A sale contingency clause (essentially) means that all parties understand Buyers need to sell their current property in order to purchase the new property.  Should Buyers fail to sell their current property, and the sale contingency clause is still in effect, Buyers should be able to terminate the transaction without penalty.   

            The problem both the seller and Buyers will face is how long the sale contingency period will need to be in effect.  Buyers, understandably will want the clause to remain in effect until the closing for their current property takes place.  However, this can take months, and many sellers do not want to remain under contract for several months, only to have their deal die because Buyers cannot sell their current property.  As a result, many times the parties can agree to a time frame that the sale contingency can last (e.g., 30 or 45 days from the conclusion of attorney review), before Buyers need to waive the said contingency or terminate the transaction. 

While there is a risk that sale of the current property can fall through after Buyers have waived the sale contingency, the risk can be minimized by having a provision in Buyers’ sale of their current property’s rider essentially stating that (i) Buyers are under contract for the new property and (ii) if the sale of the current property falls through due to a breach of contract by the new buyers, they will be liable for any damages that Buyers may incur as a result of failing to close on the new property.  Please note there is still a risk that the new buyers could breach the purchase of the current property, and not have the monies to pay the full amount of damages, but at least it can mitigate some of the damages Buyers may incur.  That said, each transaction is fact specific, so you should always contact your attorney to help assess what you best course of action in such a scenario would be.

The information in this blog posting is for general information purposes only. Nothing in this blog or associated pages, documents, comments, answers, emails, or other communications should be taken as legal advice for any individual case or situation. The information in this blog is not intended to create, and receipt or viewing of this information does not constitute, an attorney-client relationship.

Leave a Reply

  • (will not be published)

XHTML: You can use these tags: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

[gravityform id=”1″ name=”Contact Us”]