December 15th 2020
It is closing day and you are eagerly awaiting a phone call from your lawyer’s office that your transaction has closed and that you can move into your new home. By this point, you will have already signed the necessary documentation relating to your ownership and your mortgage. You will have brought the remaining funds to cover the rest of
the down payment (after adjustments), legal account, and land transfer tax. The moving truck is at the property waiting to unload. There is absolutely nothing that could go wrong! In most circumstances, you would be right. A real estate lawyer’s primary responsibility is to ensure a smooth transaction. This article discusses what it means to close in escrow and provides three scenarios where surprises on closing might occur and considers whether closing in escrow is available. For those who are selling and buying on the same day, the answer to this question is most critical.
Every real estate transaction involves an arrangement between parties where funds and documents concerning the transfer of ownership is held by representatives until all terms of the agreement are met. This holding of the pieces of a contract until they may be released unconditionally to parties is the meaning of escrow, and the undertakings given by lawyers to act in conformity with the terms of the contract are fundamental to our purpose. At its most basic, a deal is closed when the parties have said: “I have your money and you have now registered your ownership”. However, if a condition remains, the parties may agree to an escrow occupancy. This means that while you do not have legal ownership of the property, you can still move in. This solution removes the headache of coordinating your move for another day. If you have sold your existing home, the importance of negotiating an escrow closing is multiplied.
Let us consider an increasingly common issue. Your lawyer has sent closing funds to the seller’s law office by wire transfer. For reasons only the most competent bankers can explain, the wire transfer has suffered some delay in reaching the other lawyer’s account. The electronic registration of land ownership is not available after 5:00 pm, and it is now 5:01 pm. Wire transfers are often instantaneous between domestic accounts of major institutions, so under ordinary circumstances, the money would have been available to the seller promptly.
However, due to circumstances outside of either parties’ control, the money did not arrive on time and it is too late in the day to transfer ownership. In this situation, lawyers should consider an escrow agreement that will allow the buyer to take possession of the property with the condition that registration takes place once the wire transfer arrives. A selling lawyer should be satisfied with the details of the wire transfer and a purchasing lawyer might consider providing a picture to show the withdrawal of funds from their account. Despite this, a seller may still refuse an escrow occupancy. After all, the money is not yet reflected in their account. However, a purchaser cannot be said to have breached the contract since they were permitted to send a wire transfer. It is questionable whether liability would follow for a seller who refused to permit escrow occupancy after it has been demonstrated that a wire transfer was indeed sent. Regardless, purchasing lawyers will grumble over such refusals. What this means is that the parties should just cooperate.
A second and more challenging situation involves a delay in receiving funds from your lender. In this situation, your lender has sent confirmation that funds were delivered by wire transfer to your solicitor’s trust account. However, it is now 5:01 pm, and the funds are not yet delivered. A selling lawyer should be satisfied that a purchaser will be receiving funds from their lender irrevocably before considering an escrow closing. If the purchasing lawyer can confirm the details of the lender’s wire transfer and the accuracy of the account details entered, the parties will be in a better position to negotiate an escrow closing. Otherwise, the transaction will likely require an extension and the purchaser will not be permitted to enter the property. If an extension is required, there may be additional costs borne by the seller for which the purchaser may be liable.
The last situation arises when a buyer is selling a property the same day as they are purchasing one. Let us imagine Becky is selling her property to Steve and buying a home from Bob. Becky requires the proceeds from her sale so that she may complete her purchase. Unfortunately, Steve does not receive funds from his lender on the scheduled closing date and cannot send the closing funds to Becky. Steve’s representative asks for an extension on closing. As a result, Becky cannot provide funds to Bob for her purchase. Becky requests an extension from Bob and must reschedule her moving company at considerable cost and inconvenience to her and her family. As a matter of liability, Steve could not complete his contract
as agreed upon and should be made responsible for compensating Becky for the foreseeable consequences of his breach. However, an ideal situation could have involved a double-escrow, where Steve’s representative does all things possible to satisfy Becky’s representative that closing will occur so that Becky is able to provide the same reassurance to the representative for Bob and request that she be permitted to take occupancy that day. Given this ideal circumstance, it might be considered whether Becky should be required by law to mitigate her damages by requesting an escrow closing with Bob since she would not have had to reschedule her moving company. However, this would invite some legal obligation on Bob to permit the escrow closing, which appears to be too intrusive on the role of the escrow agent. In addition, there could be more cost and expense to Becky if she must vacate Bob’s property after moving in because the transaction with Steve fails for some reason. Becky should not be expected to incur more risk just because the likelihood of closing with Steve appears high.
By now you should understand what an escrow closing is and why you might need to enter one on closing day. Thankfully, a trusted real estate professional will be able to anticipate and overcome barriers to a smooth transaction. If you are considering your options for your legal representation of your purchase and sale transaction, be sure to consider Liddiard Law.