When it comes to protecting your position as buyer in a real estate transaction, you must make certain to cover yourself in case unexpected problems arise when it is time to close the deal. And this is especially true when buying a property that has been under option for six months to a year. This is why I highly recommend that you include the following three contingency clauses in your purchase agreement:
1. Buyer must approve of the property's title status and marketability before this transaction can be closed. Include this clause in the event there have been liens or lawsuits filed against the property's title or owner since the option was purchased that adversely affect the property's marketability.
2. Buyer must approve of the status of the property's existing loans before this transaction can be closed. This clause must be included in case any of the property's loans are in foreclosure.
3. Seller must completely vacate the property and grounds before this transaction can be closed. This clause protects the buyer from getting stuck with an obstinate property owner or a hostile tenant who refuses to peaceably leave the property after the sale has closed and the property's title has been transferred to the new owner.
On my third option deal, I got the shock of my young career when I exercised my option and a title search revealed that the property under option was in the throes of foreclosure and just two weeks away from being sold on the Hillsborough County Courthouse steps. Come to find out, the property owners were in the middle of a nasty divorce, and they had stopped making mortgage payments months ago. I tried to get them to sell me their equity so that I could cure the loan default, reinstate the mortgage, and stop the foreclosure action, but they could not agree on a price. And two weeks later the loan was foreclosed on, and my $2,000 option fee/earnest money deposit was wiped out in the process. I thought about filing a lawsuit against them in small claims court to try to recover my earnest money deposit, but I found out from reliable sources that they were flat broke and did not have two quarters to rub together. I could not get mad at myself because I had no way of knowing they were going to be getting a divorce six months from when we all signed the option agreement. At that time, they were acting very lovey-dovey, like everything in their life was just hunky-dory.
I have included the sample real estate purchase agreement on pages 210-211 for instructional and informational purposes only. Please do not use this agreement to purchase property in your state without first consulting with a board-certified real estate attorney to make certain that it meets all of your state's real estate contract standards.
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