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Escape Clause Vital to Avoiding Problems When Buying Home

December 10, 1989|ROBERT J. BRUSS | Bruss is a San Francisco-area lawyer, author and real estate broker.

Buying a home is one of life's most traumatic events, especially for first-time purchasers. But experienced home buyers who have purchased several homes know the value of one or two carefully worded escape clauses, just in case something goes wrong.

Often called "weasel clauses," these special contingencies in a home purchase contract protect buyers, while not taking unfair advantage of home sellers.

Here are the most widely used escape clauses designed to protect home buyers:

The finance contingency clause: The most popular contingency clause in home-purchase contracts makes the purchase offer contingent upon the buyer and the property qualifying for the loan the buyer will need.

If such a mortgage cannot be obtained, the buyer can use this escape clause to either cancel the sale and obtain a refund of the earnest money deposit, or accept the best loan available.

A well-written home finance contingency clause should be as detailed as possible. If it is too vague, a binding contract might not be formed. For example, a vague finance clause, such as: "This offer contingent upon buyer obtaining the largest available mortgage at current market rates," is probably illusory and nonbinding.

But a detailed finance clause such as: "This purchase offer contingent upon buyer and property qualifying within 15 days for a new, 30-year first mortgage for at least $100,000 with a loan fee not exceeding 2 points and a fixed interest rate of not over 10% with a monthly payment not exceeding $877.58" would be sufficient to form a legally binding contract.

To be fair to the home seller, the realty agent should make sure the buyer has the resources to qualify for the loan, to be certain the buyer has a reasonable probability of obtaining it.

Many mortgage lenders now give prospective borrowers loan approval subject only to an appraisal of the house.

The inspection contingency clause: Few home buyers spend more than 30 minutes inspecting a home before deciding to buy it. This is obviously not enough time to carefully inspect for structural defects, even if the buyer knows how to recognize a trouble spot.

The best solution is to include an inspection contingency clause in the purchase contract.

Such an escape clause might read: "This purchase offer contingent upon buyer or representative inspecting and approving the structural condition of the property at buyer's expense within five business days. This contingency shall be deemed waived unless buyer notifies seller of disapproval within said five business days."

Such a clause should be used in addition to other customary inspections, such as a structural pest-control "termite report."

The benefits of using an inspection contingency clause include:

--Time and money aren't wasted structurally inspecting a house until after the seller and buyer have signed a firm written sales contract.

--A professional inspector can be hired to evaluate the plumbing, wiring, heating, cooling, foundation, roof and other major components.

--Should serious defects be discovered, the buyer can cancel the sale and have the earnest money deposit refunded or renegotiate the sales price and terms.

The home buyer should always accompany the professional inspector, who will explain any defects that are discovered. The buyer can also ask questions about recommended solutions to minor problems, such as superficial wall cracks.

The "sale of the old home" contingency clause: Probably the most troublesome escape clause involves the sale of the buyer's residence. Real estate agents usually dislike this contingency, but it is often necessary to protect a buyer who must sell the former residence before completing a home purchase.

Smart home sellers are reluctant to take their home off the market while a buyer tries to sell his present home. To solve this problem, a 24-, 48-, or 72-hour contingency release clause can be used in the purchase offer.

This clause permits the seller to keep the house on the market and when a second acceptable offer is received, the first buyer is given 24, 48 or 72 hours to waive the sale contingency clause or cancel the first sale agreement so the house can be sold to the next willing and able buyer.

To safeguard the home seller, the buyer's old home should be listed for sale with a successful, reputable realty agent at a realistic asking price close to market value. A reasonable time limit--60 to 90 days--should be set to get the old home sold.

Home buyers need protection for financing their new residence, obtaining a professional inspection and, if necessary, the sale of their old home.

Contingency escape clauses give buyers the time they need without infringing on the seller's ability to sell to another qualified buyer. For more details on home purchase contingency clauses, consult a real estate attorney.

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